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QUESTION 1: Obtain a copy of a 2009 Annual report for a company listed on any stock exchange.

Please provide photocopies of the relevant pages of the report that you used to answer the following

questions. Highlight the appropriate section of the page.

“I have obtained a copy of a 2009 Annual report of Sony Corporation.”

i. What are the principal activities of the company?

The principal activities of Sony Corporation and its consolidated subsidiaries are engaged in

the development, design, manufacture, and sale of various kinds of electronic equipment,

instruments and devices for consumer and industrial markets. Sony also develops, produces,

manufactures, and markets home-use game consoles and software. (Sony Corporation, 2009)

p. F14

ii. State the accounting equation for the company in dollar figures at both

the start and end of the 2009 financial year.

The basic accounting equation is;

Asset = (Total liabilities + Minority interest in consolidated subsidiaries) + Owner Equity

12,013,511 = (8,796,909 + 251,949) + 2,964,653

12,013,511 = 12,013,511

Year 2009:

Assets Liabilities Owner equity

Opining 12,552,739 9,087,650 3,465,089

Ending 12,013,511 9,048,858 2,964,653

(Sony Corporation, 2009) p. F 4, 5

iii. What is the basis for measurement of assets and liabilities for the company?

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The basis for measurement of assets and liabilities is in February 2007, the FASB issued FAS

No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. FAS No.

159 permits companies to choose to measure, on an instrument-by-instrument basis, various

financial instruments and certain other items at fair value that are not currently required to be

measured at fair value. The fair value measurement election is irrevocable and subsequent

changes in fair value must be recorded in earnings. Sony adopted FAS No. 159 on April 1,

2008. Sony did not elect the fair value option for any assets or liabilities that were not

previously carried at fair value. (Sony Corporation, 2009) p. F15

iv. What financial milestones are discussed in letter to shareholders?

The financial millstones are cost reduction throughout the Sony Group of more than ¥ 250

billion in fiscal year 2009 compared to fiscal year 2008 through restructuring and other

initiatives. They now believe that these initiatives will reduce cost by more than ¥300 billion.

They have adjusted production, lowered inventory levels, reduced marketing and other

operational expenses, and curtailed or delayed portions of our investment plans. They will

continue these and other efforts to improve efficiency and will wage a continuous battle to

make this company leaner, quicker and stronger and therefore, better able to innovate, lead

and flexibly navigate in these increasingly competitive times. (Howard Stringer, 2009)

v. What was the consolidated net profit made for the 2009 financial year?

The Consolidate net profit was not recorded for the 2009 financial year because company

face losses and net loss was recorded (98,938) million yen. (Sony Corporation, 2009)P.F6

vi. How much was the consolidated cash flow from operating activities for the 2009 year?

Did it increase from the previous financial year?

The consolidated cash flow from operating activities was 407,153 million yen for the 2009

year. No, it didn’t increase because previous financial year operating activities was 757,684

million yen. (Sony Corporation, 2009)P. F8

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vii. What was entity’s accounting policy for revenue recognition? Why does the entity need

an accounting policy for this item?

The entity’s accounting policy for revenue from electronics, game and music sales were

recognized upon delivery which is considered to have occurred when the customer has taken

title to the product and the risks and rewards of ownership has been substantively transferred.

If the sales contract contains a customer acceptance provision, then sales are recognized after

customer acceptance occurs or the acceptance provisions lapse. Revenues are recognized net

of anticipated returns and sales incentives. Revenue generally is recognized net of any taxes

collected from customers and subsequently remitted to governmental authorities. (Sony

Corporation, 2009)P. F21

viii.Explain the role of the directors’ report- illustrate from the report.

The Role of Directors’ Report is to provide a more detailed review of the activities of the

Company for shareholders, lenders, investors, potential investors, employees, trade unions,

suppliers, etc. (Advanced Higher Accounting and Finance Specimen Question Paper,


It is mentioned in directors’ report that the company is leading provider of networked

consumer electronics, entertainment and services. To do this, they must strength each of the

pillars of their core businesses and be coordinated in their efforts to innovate for further

growth. Innovation has always been one of Sony’s celebrated strengths, and it is through

innovation that they will continue to develop the unique products, content and services that

deliver rich user experience and inspiration to their customers.

To let this innovation drive Sony to new heights, they need to challenge their engineers,

designers and producers to enhance our exciting hardware with a new focus on the software

and content that will help establish their differentiation going forward, nurture an Asset light

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corporate structure and efficiently use their capital so that it will generate sufficient returns

on our investments. (Howard Stringer, 2009)

ix. Explain the role of the audit’s report. Who are the auditors of the company?

The role of an audit report has described corporate governed procedures and it has followed

NYSE standard. It ensures stakeholders interest. It enhances the credibility of the company.

The auditors are independent and qualified externals Yoshiaki Yamauchi and Fueo Sumita.

(Sony Corporation, 2009)P. 118

x. Illustrate how the financial report was influenced by the regulatory framework

discussed in Topic 1.

I do not understand this question but I will illustrate what should I understand.

Financial statements included trial balance, assets, liabilities, income, expenses, capital, profit

and loss accounts, balance sheet, cash flow statement, notes to the accounts, statement of

recognized gains and losses.

Regulatory framework can be user group, user needs, legislation and other regulations. User

group are owners, management, employees, suppliers, customers, lenders, government,

potential investors, different needs from financial statements. User needs are profitability,

liquidity, gearing, cash flow, job security, ASB’s statement of principles and IASB’s

framework for the presentation of financial statement. Other regulations are Statements of

Standard Accounting Practice (SSAPs) and Financial Reporting Standards (FRSs), The

Accounting Standards Board (ASB), International Accounting Standards (IASs).

Financial report influence by user group and user needs. Because they need information to

help them determine whether they should buy, hold or sell. Shareholders are also interested in

information which enables them to assess the ability of the enterprise to pay dividends.

Employees and their representative groups are interested in information about the stability

and profitability of their employers. Lenders are interested in information that enables them

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to determine whether their loans, and the interest attaching to them, will be paid when due.

Suppliers and other creditors are interested in information that enables them to determine

whether amounts owing to them will be paid when due. Trade creditors are likely to be

interested in an enterprise over a shorter period than lenders unless they are dependent upon

the continuation of the enterprise as a major customer. Customers have an interest in

information about the continuance of an enterprise, especially when they have a long-term

involvement with or are dependent on, the enterprise. Governments and their agencies are

interested in the allocation of resources and, therefore, the activities of enterprises. They also

require information in order to regulate the activities of enterprises, determine taxation

policies and as the basis for national income and similar statistics. Enterprises affect members

of the public in a variety of ways. While all of the information needs of these users cannot be

met by financial statements, there are needs which are common to all users. As investors are

providers of risk capital to the enterprise, the provision of financial statements that meet their

needs will also meet most of the needs of other users.

The management of an enterprise has the primary responsibility for the preparation and

presentation of the financial statements of the enterprise. Management is also interested in the

information contained in the financial statements even though it has access to additional

management and financial information that helps it carry out its planning, decision-making

and control responsibilities. Nevertheless, published financial statements are based on the

information used by management about the financial position, performance and changes in

financial position of the enterprise. In short, it can say that the financial report was greatly

influenced by the regulatory framework. (financial Reporting Standards)Paragraphs 5,6 & 7

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Question #2: On 1 April 2008. Legal Services Ltd paid $6000 for a 12-month insurance, which

covers the period from 1 April 2008 to 31 March 2009. The company is required to prepare financial

statements for the year ended 30 June 2008.


Using the appropriate Framework definitions and recognition criteria for assets, liabilities, revenues

and expenses:

a) Explain how the $6000 insurance payment on 1 April 2008 should be accounted for;

Unexpired Insurance $ 6,000

Cash $ 6,000

As the company has paid the $6,000 for the 12-month insurance policy and received this policy so

this payment should be accounted as Asset; as from framework definition of assets; this payment has

past transaction, current control and it is providing future benefit to the owner. Like here unexpired

insurance is assets it future benefit to flow cash in the enterprise it result from past transaction. Like

here one asset (unexpired assets) comes in a company while other asset (each) flows from company.

In addition, it has a cost or value that can be measured reliably.

Liability is probable to future reliable sacrifices. It has present obligation. It has no liability incurred

as no present obligation incurred.

Insurance expanse $1,500

Unexpired Insurance $1,500

As the transaction has occurred 3 months ago on 1 April 2008, so in the income statement on 30

June, it will be accounted as Expense as it is satisfying the criteria and framework definition. During

these 3 months, the firm has used this policy so by the definition of expenses; expenses

encompasses losses as well as those expanses that arise in the course of the ordinary activities of the

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enterprise. Losses represent decrease in economic benefits as in this case the economic benefit

duration has decreased from 12 months to 9 months. Therefore this transaction on the June 30, 2008

will be accounted as expense in the statement of comprehensive income based on a direct

association between the cost incurred and the earning of benefits. Moreover, the remaining portion

of the policy will be accounted as asset for it satisfies all the conditions of assets.

Equity is residual interest/claim of assets but here is no reserve retained earning or contribution to

shareholders are discussed so no equity here

Revenue is inflow of business and its recognition criteria is that the process of share completed and

ownership transferred but on this no sales incurred, so it does not earned with revenue.

b) Explain the effect of the transaction on the 30 June 2008 financial statements.

Asset has effect the Balance Sheet because unexpired insurance is assets.

Expense has effect on income statement net profit of the company.

Liability has no effect on financial statement for this question.

Owner equity has no effect on financial statement for this question.

As for the paragraph 51 Financial Reporting Standard 1 (FRS1) the answer of the following
question will be the following standardized form.
Answer 3
Income statement
For the period 30 June 2008

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Sales $ 200,000
Less: Cost of Goods Sold 115,000
Gross Profit $ 85,000
Operating Expense:
Rent Expense $ 3,000
Electricity Expense 800
Deprecation Expense 4,000
Wages 25,000
Interest Expense 1,000 33,800

Total Income (loss) $ 51,200

Balance Sheet
As AT 30 June 2008

Current assets:
Cash $ 14,200
Debtors 5,000
Inventory on hand 28,000

Total current assets $47,200

Noncurrent assets:
Fitting $ 20,000
Less: all for activities for depreciation 4,000
Total noncurrent assets $ 16,000
Total assets: $ 63,200


Current liabilities:
Creditors $ 3,000
Loan for fittings 14,000

Total current liabilities $ 17,000

Owners’ Equity:
Capital $ 10,000

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Add: Net income (loss) 51,200
Subtotal 61,200
Less: Drawing (15,000)

Total Owners’ Equity $ 46,200

Total liabilities and owners’ equity: $ 63,200

As for the paragraph 51 Financial Reporting Standard 1 (FRS1) the answer of the following

question will be the following standardized form.

Answer 4

Highlight Ltd
Statements of Cash Flows
For the period 30 June 2008

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Cash flows from operating activities:
Cash collected from customer $ 1,300,000
Cash paid to suppliers & employees (790,000)
Interest paid (20,000)
Taxes paid (40,000)

Net cash provided (used) by operating activities $ 450,000

Cash flows from investing activities:

Cash received from land $ 60,000
Purchase of Equipment (390,000)

Net cash used in investing activities $ (330,000)

Cash flows from financing activities:

Repayment of bank loan $ (70,000)
Issues of shares 200,000
Dividends paid (150,000)

Net cash provided by financing activities $ (20,000)

Increase in the cash for the month $ 100,000

Cash balance in June 02, 2008 80,000

Cash balance in June 30, 2008 $ 180,000

Question#5: Steve is a sole trader who runs “Accounting Services”. The following information

relates to Accounting services for the year ended 30 June 2008:

• The owner withdrew $40,000 of cash and contributes $10,000.

• The opening amount of Steve’s capital account was $100,000 and the closing balance was


a) Determine the profit of “Accounting Services” for the year ended 30 June 2008.

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Accounting Services
Statements of Equity
For the period 30 June 2008

Capital (Opening Balance) $ 100,000

Add: Investment 10,000

$ 110,000

Less: Drawings (40,000)

Remaining Income $ 70,000

Add: Profit 64,000

Capital (ending Balance) $ 134,000

b) Briefly outline why “capital maintenance” is central to the measurement of profit and

which capital maintenance concept you have used in your answer (a) above.

Capital maintenance is central to a measurement of profit as it provides the linkage between

the concepts of capital and the concepts of profit because it provides the point of reference by

which profit is measured. It is a prerequisite for distinguishing between an enterprises’ return

on capital and its return of capital.

In part (a) I have used the “Financial capital maintenance” concept as the amount of the net

assets at the end of the period exceeds the financial amount of net assets at the beginning of

the period after excluding any distribution to and contribution form owners during the period.

(financial Reporting Standards)Paragraphs 100


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Advanced Higher Accounting and Finance Specimen Question Paper, n.d, Retrieved April

24, 2010, from

FRS 1 Presentation of Financial Statements supersedes FRS 1 Presentation of Financial

Statements (revised in 2006) as amended in 2007.

Financial Reporting Standards, (n.d). Framework for the Preparation and Presentation of

Financial Statements.

Howard Stringer, (2009). Letter to Shareholders, Retrieved April 24, 2010


Sony Corporation, (2009). ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF


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