Solutions Manual: Company Accounting 10e

Solutions Manual
to accompany
Company Accounting 10e

prepared by
Ken Leo
John Hoggett
John Sweeting
Jeffrey Knapp
Sue McGowan
© John Wiley & Sons Australia, Ltd 2015

Chapter 15 – Disclosure: presentation of financial
statements
REVIEW QUESTIONS
1. What constitutes a complete set of financial statements?
According to paragraph 10 of AASB 101, 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 a summary of significant accounting policies and other
explanatory information;
(ea) comparative information in respect of the preceding period as specified in paragraphs
38 and 38A; and
(f) 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.
AASB 101 also provides that that an entity may use titles for the statements other than those
specified in paragraph 10, e. g. the statement of financial position may be referred to as the
balance sheet and the statement of profit or loss and other comprehensive income may be
referred to as the statement of comprehensive income.
2. What are the eight general features of a complete set of financial statements?
AASB 101 (paragraphs 15 – 46) outlines eight general features of a complete set of financial
statements:
1. fair presentation and compliance with Standards
2. going concern
3. accrual basis of accounting
4. materiality and aggregation
5. offsetting
6. frequency of reporting
7. comparative information
8. consistency of presentation.
3. Financial statements must include ‘comparative figures’. What does this mean, and
can a company change these comparative figures in the following year? Discuss
fully.
Paragraph 38 of AASB 101 requires disclosure of comparative financial information in

respect of the preceding period’ (i.e. the previous reporting period) for all amounts required
to be reported in the current period’s financial statements. Comparative information for
narrative and descriptive information is also to be included if it is relevant to understanding
the current period’s financial statements.
According to paragraph 38A of AASB 101:

An entity shall present, as a minimum, two statements of financial position, two statements of profit or
loss and other comprehensive income, two separate statements of profit or loss (if presented), two
statements of cash flows and two statements of changes in equity, and related notes.
If the presentation or classification of items in the financial statements is changed,

comparative information must also be reclassified and the nature, amount of and reason for
the reclassification must be disclosed (AASB 101 paragraph 41). Reclassification is not
necessary if this is ‘impracticable’; for example, an entity may not have collected data in
previous periods in a way that allows reclassification. In this case, the reason for not
reclassifying the comparative amounts and the nature of the adjustments that would have
been made if the amounts were reclassified must be disclosed (AASB 101 paragraph 42).
Comparative information must also be adjusted for changes in accounting policy or

corrections of errors in accordance with AASB 108 Accounting Policies, Changes in
Accounting Estimates and Errors. AASB 108 is covered in chapter 14. According to AASB
101 paragraphs 40A and 40B, three statements of financial position (and two each of the
other statements and related notes) must be presented when:
• a company applies an accounting policy retrospectively, or
• makes a retrospective restatement of items in its financial statements, or
• reclassifies items in its financial statements.
These three statements of financial position must be presented at:

• the end of the current period
• the end of the preceding period
• the beginning of the preceding period.
Thus, if the reporting period ends on 30 June 2018, the three statements of financial position
must be presented at 30 June 2018, 30 June 2017 and 1 July 2016. However, related notes are
not required for this third statement of financial position — that is, 1 July 2016 (AASB 101
paragraph 40C). As noted in section 15.1, the third statement of financial position (the
beginning of the preceding period) forms part of a complete set of financial statements.
4. Is there a required or fixed format for the presentation of the statement of financial
position?
No. AASB 101 does not prescribe a required order or format for the statement of financial
position (paragraph 57). Paragraph 54 of AASB simply lists items that are sufficiently
different in nature or function to warrant separate presentation in the statement of financial
position. However, reference is made in AASB 101 to the Implementation Guidance on IAS
1 Presentation of Financial Statements which accompanies, but is not part of, IAS 1. The
Implementation Guidance provides guidance as to how a company may present a statement
of financial position distinguishing between current and non-current items.
5. All assets and liabilities are normally classified either as current or non-current in
the statement of financial position. What other method of classification is permitted
by AASB 101 and when should this other method be used?
AASB 101 paragraph 60 requires all assets and liabilities to be classified either as current or
non-current, unless a liquidity presentation is appropriate to provide more relevant and
reliable information.
For some entities, such as financial institutions, assets and liabilities may be presented in
increasing or decreasing order of liquidity if this provides information that is reliable and
more relevant than a current/non-current presentation, because these entities do not supply
goods and services within a clearly defined operating cycle (AASB 101 paragraph 63).
6. A current asset is an asset expected to be realised within an entity’s normal

operating cycle. What is an operating cycle and can the cycle extend beyond 12
months?
Paragraph 68 of AASB 101 defines the operating cycle as the time between the acquisition of
assets for processing and their realisation into cash or cash equivalents (i.e. short-term, highly
liquid investments readily convertible to known amounts of cash and subject to an
insignificant risk of changes in value). The operating cycle is usually 12 months but it may
be longer than 12 months after the reporting period.
7. Is there a required or fixed format for the presentation of the statement of profit or
loss and other comprehensive income?
No. AASB 101 does not prescribe a required order or format for the statement of profit or
loss and other comprehensive income. However, a company must chose 1 of 2 presentations.
According to paragraph 10A of AASB 101, a company may present either:
1. a single statement of profit or loss and other comprehensive income with profit or loss
and other comprehensive income presented in two sections (the two sections are to be
presented together with the profit or loss section presented first followed directly by
the other comprehensive income section); or
2. a separate statement of profit or loss immediately followed by a statement of
comprehensive income.
8. Entities are required by AASB 101 to present an analysis of expenses using a
classification based on either their nature or their function. What is meant by this
requirement and where is the classification disclosed?
Although details of expenses are not included as a line item on the statement of profit or loss
and other comprehensive income (except finance costs) according to AASB 101 paragraph
82, entities are required by paragraph 99 to present an analysis of expenses recognised in
profit or loss using a classification based on either:
 the nature of expense method, e.g. depreciation, purchases of materials, transport costs,
employee benefits and advertising costs (AASB 101 paragraph 102), or
 the function of expense (or ‘cost of sales’) method, e.g. expenses classified according to
their function as part of cost of sales or, for example, as distribution costs or
administrative expenses (AASB 101 paragraph 103).
Furthermore, entities are encouraged by paragraph 100 of AASB 101 to present the expense
analysis required by AASB 101 paragraph 99 in the statement of profit or loss and other
comprehensive income.
The standard notes that the function of expenses or ‘cost of sales’ method can provide more
relevant information to users than the nature of expense method, but may require the arbitrary
allocation of costs to functions and involve considerable judgement (AASB 101 paragraph
103). Entities classifying expenses by function are also required to disclose additional
information on the nature of expenses, including depreciation and amortisation expense and
employee benefits expenses (AASB 101 paragraph 104). This additional disclosure of
expenses by nature is usually provided in the notes that accompany the financial statements.
9. What items comprise other comprehensive income?
Other comprehensive income comprises items of income and expense (including

reclassification adjustments) that are not recognised in profit or loss as required or permitted
by other accounting standards (AASB 101 paragraph 7). According to AASB 101 paragraph
7, the items of other comprehensive income include:
(a) changes in a revaluation surplus (see AASB 116 Property, Plant and Equipment
and AASB 138 Intangible Assets ;
(b) measurements of defined benefit plans (see AASB 119 Employee Benefits);
(c) gains and losses arising from translating the financial statements of a foreign
operation (see AASB 121 The Effects of Changes in Foreign Exchange Rates);
(d) gains and losses from investments in equity instruments measured at fair value
through other comprehensive income in accordance with paragraph 5.7.5 of AASB
9 Financial Instruments;
(e) the effective portion of gains and losses on hedging instruments in a cash flow
hedge (see AASB 139 Financial Instruments: Recognition and Measurement); and
(f) for particular liabilities designated as at fair value through profit or loss, the
amount of the change in fair value that is attributable to changes in the liability’s
credit risk (see paragraph 5.7.7 of AASB 9).
10. What are reclassification adjustments?
Reclassification adjustments are amounts that were recognised in other comprehensive

income in previous years (or the current year) but are reclassified (or ‘recycled’) to the
current period’s profit or loss when the relevant item is derecognised (usually sold).
Paragraph 93 of AASB 101 explains reclassification adjustments as follows:

Other Australian Accounting Standards specify whether and when amounts previously
recognised in other comprehensive income are reclassified to profit or loss. Such
reclassifications are referred to in this Standard as reclassification adjustments. A
reclassification adjustment is included with the related component of other comprehensive
income in the period that the adjustment is reclassified to profit or loss. These amounts may
have been recognised in other comprehensive income as unrealised gains in the current or
previous periods. Those unrealised gains must be deducted from other comprehensive
income in the period in which the realised gains are reclassified to profit or loss to avoid
including them in total comprehensive income twice.
11. How is total comprehensive income determined?
The aggregation of profit or loss and other comprehensive income is referred to as total
comprehensive income and represents the change in equity during a period resulting from
transactions and other events, other than those changes resulting from transactions with
owners in their capacity as owners or shareholders (AASB 101 paragraph 7).
In summary this may be expressed as follows:

Total comprehensive income (changes in equity other than transactions with shareholders) =
profit or loss (income – expenses) + other comprehensive income (income and expense items
not recognised in profit or loss).
Components of other comprehensive income include:

(a) changes in a revaluation surplus (see AASB 116 Property, Plant and Equipment
and AASB 138 Intangible Assets ;
(b) measurements of defined benefit plans (see AASB 119 Employee Benefits);
(c) gains and losses arising from translating the financial statements of a foreign
operation (see AASB 121 The Effects of Changes in Foreign Exchange Rates);
(d) gains and losses from investments in equity instruments measured at fair value
through other comprehensive income in accordance with paragraph 5.7.5 of AASB
9 Financial Instruments;
(e) the effective portion of gains and losses on hedging instruments in a cash flow
hedge (see AASB 139 Financial Instruments: Recognition and Measurement); and
(f) for particular liabilities designated as at fair value through profit or loss, the amount of
the change in fair value that is attributable to changes in the liability’s credit risk (see
paragraph 5.7.7 of AASB 9).
12. The statement of changes in equity is the link between the statement of profit or loss
and other comprehensive income and the statement of financial position. Explain.
The statement of changes in equity discloses total comprehensive income for the period (which
is equal to the aggregation of profit or loss and other comprehensive income), the amounts of
transactions with equity holders, and a reconciliation of movements during the period for each
component of equity. This represents the changes in the entity’s net assets during the period.
Transactions involving the entity and shareholders (e.g. dividends, share issues) must be
disclosed in the statement of changes in equity, while other non-owner changes in equity (e.g.
revaluations of property, plant and equipment) can only be disclosed in the statement of profit
or loss and other comprehensive income.
13. What are ‘notes’ and what is the purpose of providing notes?
Notes are provided to help users understand the information provided in financial statements,
i.e. the statement of financial position, statement of profit or loss and other comprehensive
income, statement of changes in equity and statement of cash flows. The notes that
accompany the financial statements must be presented in a systematic manner, with
appropriate cross-referencing to each related item in the financial statements (AASB 101
paragraph 113).
According to paragraph 112(a) and (b) of AASB 101, the notes must present information
about the basis of preparation of the financial statements, the specific accounting policies
used and disclose information required by Australian accounting standards that is not
presented elsewhere in the financial statements. For example, disclosure of ‘non-adjusting’
events in accordance with AASB 110 Events after the Reporting Period relates to
information not presented elsewhere in the financial statements. The notes must also disclose
information not presented in the financial statements but which is relevant to an
understanding of the financial statements (AASB 101 paragraph 112(c)).
14. According to AASB 101 in what order are notes normally presented?
According to paragraph 114 of AASB 101, notes are normally presented in the following
order:
 a statement of compliance with Australian accounting standards (see also AASB 101
paragraph 16)
 a summary of significant accounting policies applied
 supporting information for items presented in the financial statements in the order in
which each financial statement and each line item is presented
 other disclosures (such as contingencies), commitments and non-financial disclosures.
The summary of significant accounting policies applied in the preparation of the financial
statements is usually presented as note 1 to the financial statements, including the statement
of compliance with Australian accounting standards.
15. AASB 101 now requires forecast information to be disclosed. Discuss.
AASB 101 does not require forecast financial information to be disclosed. Rather, paragraph
125 of AASB 101 requires a company to disclose information about the assumptions it
makes about the future, and other major sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.
The assumptions about the future and other sources of measurement uncertainty relate to
estimates that require management’s most difficult, subjective or complex judgements, e.g.
future interest rates, future changes in prices affecting costs and useful lives. These
judgements become more subjective and complex as the number of variables and
assumptions affecting the possible future resolution of the uncertainties increases (AASB 101
paragraph 127).
It is suggested that disclosure of assumptions regarding the future should relate to the impact
of those assumptions on the existing position of the company, rather than on forecast
information.
16. AASB 101 requires certain information to be disclosed in financial statements. In

respect of the following items, specify where the information would be included in
the statement of profit or loss and other comprehensive income, the statement of
financial position or the statement of changes in equity:
(a) transfer from retained earnings to general reserve
(b) profit for the period
(c) income tax expense
(d) interest revenue and interest expense
(e) dividends
(f) depreciation expense
(g) auditor remuneration
(h) share capital.
Note: assets/liabilities may be disclosed under the sub-headings of current/non-current

assets/liabilities or assets/liabilities in order of liquidity depending on which statement of
financial position format is chosen – current/non-current or liquidity.
(a) Changes in retained earnings and each reserve during the period are disclosed in the
statement of changes in equity.
(b) Profit for the period is disclosed as a line item in the statement of profit or loss and
other comprehensive income.
(c) Income tax expense is disclosed as a line item in the statement of profit or loss and
other comprehensive income.
(d) Interest revenue would be disclosed as a part of the line item ‘revenue’ in the
statement of profit or loss and other comprehensive income. If significant, interest
revenue would be disclosed as a separate category of revenue, usually in the notes.
Interest expense is disclosed as a line item in the statement of profit or loss and other
comprehensive income as ‘finance costs’.
(e) According to paragraph 107 of AASB 101, an entity must disclose both the amount of
dividends recognised as distributions to owners (shareholders) during the period and
the related amount per share either:
 in the statement of changes in equity, or
 in the notes.
(f) Depreciation expense may be disclosed as a line item in the statement of profit or loss
and other comprehensive income if expenses are classified by nature. Alternatively,
depreciation may form part of various line items in the statement of profit or loss and
other comprehensive income (e.g. distribution costs, administrative costs, etc.) if
expenses are classified by function.
(g) In accordance with AASB 1054 Australian Additional Disclosure paragraphs 10-11,
an entity must disclose fees to each auditor or reviewer — that is, auditor
remuneration being the amounts paid or payable to the auditor in relation to:
• an audit or review of the financial statements of the entity
• all other services performed during the reporting period, disclosing separately the
nature of other services.
(h) Share capital is disclosed as a line item in the statement of financial position as part of
equity. In addition, various details relating to each class of share capital, such as
number of shares authorised, number of shares issued and fully paid, etc. are disclosed
in the notes in accordance with AASB 101 paragraph 79(a). Details of changes (if
any) in share capital, e.g. share issues, will be disclosed in the statement of changes in
equity.
17. AASB 101 requires certain line items to be disclosed in the statement of financial
position and the statement of profit or loss and other comprehensive income. Can
additional line items be disclosed? Explain.
In the statement of financial position, AASB 101 paragraph 55 requires the presentation of
additional items, headings and subtotals when it is considered relevant to an understanding of
the company’s financial position. Furthermore, additional line items, headings and subtotals
can be included in the statement of profit or loss and other comprehensive income when it is
considered relevant to an understanding of the company’s financial performance (AASB 101
paragraph 85).
CASE STUDIES
Case study 1 Analysis of expenses
Entities are required by AASB 101 to present an analysis of expenses using a
classification based on either their nature or their function. Which classification should
an entity use?
Entities are required by AASB 101 paragraph 99 to present an analysis of expenses within
profit or loss using a classification based on either:
 the nature of expense method, e.g. depreciation, purchases of materials, transport
costs, employee benefits and advertising costs or
 the function of expense (or ‘cost of sales’) method, e.g. expenses classified according
to their function as part of cost of sales, or, for example, as distribution costs or
administrative expenses.
According to AASB 101 paragraph 99, the classification should be based on “whichever
provides information that is reliable and more relevant”. The classification method selected
may depend on historical and industry factors, and the nature of the entity (AASB 101
paragraph 105). Also note that entities are encouraged to present the analysis of expenses in
the statement of profit or loss and other comprehensive income (AASB 101 paragraph 100).
Expenses classified according to their nature (e.g. depreciation, transport costs, etc.) are not
reallocated among various functions within the entity. As no allocations of expenses to
functional classifications, this method may be simple for entities to apply (AASB 101
paragraph 102).
The function method can provide more relevant information to users, but may require the
arbitrary allocation of costs to functions and involve considerable judgement (AASB 101
paragraph 103). Entities classifying expenses by function are also required to disclose
additional information on the nature of expenses, including depreciation and amortisation
expense and employee benefits expenses (AASB 101 paragraph 104). This additional
disclosure of expenses by nature is usually provided in the notes that accompany the financial
statements. Interestingly, in support of this additional disclosure when the function of
classification is used, AASB 101 notes it is required “because information on the nature of
expenses is useful in predicting future cash flows” (AASB 101 paragraph 105).
As both expense classification methods have merit for different types of entities, AASB 101
does not prescribe a particular method. Rather, AASB 101 requires management to select the
classification method that is reliable and more relevant (AASB 101 paragraph 105).
Case study 2 Classification of expenses
Examples provided in the chapter indicate that Tabcorp Holdings Ltd (figure 15.10, p.
000) classified expenses by nature, whereas Sigma Pharmaceuticals Ltd (figure 15.11, p.
000) classified expenses by function. Give some possible reasons for the different
methods of classification of expenses used by these two companies.
Tabcorp Ltd and Sigma Pharmaceuticals Ltd presumably selected their respective expense
classification methods due to considerations of reliable and relevance for users of financial
statements. Some companies may regard the disclosure of cost of sales (and gross margin) as
providing important and sensitive information to competitors; hence these companies will be
reluctant to use the function of expense method. The expense classification method selected
for financial reporting may also be in accordance with how internal reports are prepared and
presented to management within the company.
Case Study 3 Measurement basis used

A first-time shareholder has approached you requesting some advice. The shareholder has
received the company’s annual report and noticed the following statement in the summary of
significant accounting policies:
The financial report has been prepared on the basis of historical cost, except for the
revaluation of certain non-current assets which is explained in the notes.
Explain to the shareholder why this statement is included in the accounting policy note.
It is important for companies to disclose the measurement basis (or bases) used in preparing
the financial statements because AASB standards permit alternatives, e.g. cost or revaluation
basis for property, plant and equipment under AASB 116 Property, Plant and Equipment.
Therefore users of financial statements need to understand which basis (or bases) the
company has chosen in order to facilitate comparisons with other companies as revaluations
may have an impact on both financial performance (in the form of higher depreciation
expense and thus lower profit) and financial position of the company (higher asset and equity
values).
Case Study 4 Management judgements
Any judgements made by management when applying the entity’s accounting policies
that have significant effect on amounts recognised in the financial statements must also
be disclosed. What judgements do you think are made by management?
According to paragraph 122 of AASB 101, an entity must disclose in the notes the
judgements, apart from those involving estimates, made by management when applying the
entity’s accounting policies that have the most significant effect on the amounts recognised in
the financial statements. These judgements (as outlined in AASB 101 paragraph 123) may
include:
a) whether financial assets are held-to-maturity investments;

b) whether substantially all the risks and rewards of ownership of an asset are
transferred (a finance lease) or whether the lease is an operating lease; and
c) whether, in substance, particular sales of goods are financing arrangements and
therefore do not give rise to revenue.
Case Study 5 Formats for statement of profit or loss and other
comprehensive income
The accountant for Moonshine Ltd has heard that following recent changes to
accounting standards, the income statement now has a new title and companies now
have a choice regarding the presentation of income and expense items recognised in a
period. However, the accountant is unsure of the exact requirements following changes
to accounting standards. As you are a recent university accounting graduate, the
accountant seeks your assistance and requests that you provide information to
Moonshine Ltd about this apparent presentation choice and whether the income
statement now has a new title.
The statement of profit or loss and other comprehensive income provides information
regarding the financial performance of the entity for the reporting period. Income, expenses
and other comprehensive income (e.g. movements in asset revaluation reserve) are
summarised in the statement of profit or loss and other comprehensive income to determine
an entity’s total comprehensive income, the usual measure of an entity’s financial
performance.
According to paragraph 10A of AASB 101, an entity may present:

 a single statement of profit or loss and other comprehensive income with profit or loss
and other comprehensive income presented in two sections (the two sections are to be
presented together with the profit or loss section presented first followed directly by
the other comprehensive income section), or
 a separate statement of profit or loss immediately followed by a statement of
comprehensive income, which shall begin with profit or loss.
There appears to be no clear principles as to why income and expenses can be separated into
two statements.
While the income statement is now referred to as the statement of profit or loss and other
comprehensive income by AASB 101, according to paragraph 10 an entity may use another
title for the statement of profit or loss and other comprehensive income , e.g. statement of
comprehensive income .
PRACTICE QUESTIONS
Question 15.1 Statement of profit or loss and other comprehensive

income (classify expenses by function)
The following information relates to Final Frontier Ltd. Profit before tax for the year
ended 30 June 2017 was $388 000. The following items were used in determining that
profit:
Sales revenue $1 116 000
Cost of sales 468 000
Selling expenses 120 000
Administrative expenses 72 000
Other expenses 44 000
Interest expense 24 000
During the year, land was revalued and a gain of $20 000 was recorded. Assume the
company’s taxation rate is 30c in the dollar.
Required
Prepare a statement of profit or loss and other comprehensive income for Final Frontier
Ltd for the year ended 30 June 2017, in accordance with the requirements of AASB 101
(classify expenses by function).
[Comparative information must be disclosed in respect of the preceding period for all
amounts reported in the current period's financial statements in accordance with AASB
101 paragraph 38. However this information is not provided in the question].
FINAL FRONTIER LTD

Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2017
Revenue $ 1 116 000

Cost of sales (468 000)
Gross profit 648 000
Selling expenses (120 000)
Administrative expenses (72 000)
Other expenses (44 000)
Finance costs (24 000)
Profit before income tax 388 000
Income tax expense (116 400)
Profit for the year 271 600
Other comprehensive income
Items that will not be reclassified to profit or loss
Gain on revaluation of land 20 000
Income tax relating to items not reclassified (6 000)
Other comprehensive income for the year, net of tax 14 000
Total comprehensive income for the year $ 285 600
Question 15.2 Disclosure of items in the financial statements
AASB 101 requires certain information to be disclosed in statement of financial

position. In respect of each of the following items, specify (i) the name of the line where
the item would appear on the statement of financial position, and (ii) classification
(current/non-current) on the statement of financial position:
(a) goodwill
(b) share capital
(c) cash at bank
(d) dividend payable
(e) accounts receivable
(f) machinery
(g) debentures payable (due in 10 years)
(h) provision for long service leave (due in 8 years)
(i) accounts payable
(j) asset revaluation surplus.
Item Name of line item in the statement of Classification

financial position
(a) Intangible assets Non-current assets
(b) Share capital Equity
(c) Cash and cash equivalents Current assets
(d) Trade and other payables Current liabilities
(e) Trade and other receivables Current assets
(f) Property, plant and equipment Non-current assets
(g) Long-term borrowings Non-current liabilities
(h) Employee benefits Non-current liabilities
(i) Trade and other payables Current liabilities
(j) Reserves Equity
AASB 101 requires certain information to be disclosed in financial statements. In

respect of each of the following items, specify (i) whether the item would be disclosed in
the statement of profit or loss and other comprehensive income, the statement of
financial position or the statement of changes in equity, and (ii) the name of the line
where the item would appear on that particular financial statement:
(a) transfer to retained earnings from general reserve
(b) prepaid insurance expense
(c) short-term, highly liquid investments
(d) borrowing costs
(e) change in equity due to recorded increase in value of property
(f) brand names
(g) issue of redeemable preference shares (classified as equity) during the year
(h) estimated future obligations to repair or replace faulty goods previously sold by the
company
(i) proceeds from sale of finished goods
(j) distribution of profits to shareholders during the year.
Item Title of financial statement on Name of line item in the financial statement
which item disclosed
(a) Statement of changes in equity ‘Transfer to retained earnings’, part of the
reconciliation for changes in retained earnings
and general reserve during the year
(b) Statement of financial position ‘Trade and other receivables’
(c) Statement of financial position ‘Cash and cash equivalents’. This particular
asset because of its apparent high liquidity
status would be regarded as a ‘cash
equivalents’ asset. If it does not fit the
definition of ‘cash equivalents’ (see AASB 107
paragraph 6), then it would be disclosed as a
‘trade and other receivables’
(d) Statement of profit or loss and ‘Finance costs’
other comprehensive income
(e) Statement of profit or loss and ‘Gain on revaluation’, part of other
other comprehensive income; comprehensive income for the year; and ‘total
and statement of changes in comprehensive income for the year’, part of the
equity reconciliation for changes in the revaluation
surplus during the year
(f) Statement of financial position ‘Other intangible assets’
(g) Statement of financial position; ‘Share capital’; and ‘issue of share capital’, part
and statement of changes in of the reconciliation for changes in share
equity capital during the year
(h) Statement of financial position ‘Provisions’
(i) Statement of profit or loss and ‘Revenue’
other comprehensive income
(j) Statement of changes in equity ‘Dividends’, part of the reconciliation for
changes in retained earnings during the year and
disclosure of the related amount per share
AASB 101 requires certain information to be disclosed in financial statements and in

the notes. In respect of each of the following items, specify the name of the financial
statements where the item would appear, or whether disclosure would be found in the
notes to the financial statements:
(a) provision for warranty repairs
(b) allowance for depreciation
(c) issue of ordinary shares
(d) finance expenses
(e) contingent liabilities
(f) deferred tax asset
(g) gain on revaluation of land (not reversing any previous devaluation)
(h) audit fees
(i) change to the opening balance of retained earnings due to a correction of a prior
period error
(j) dividends paid and declared.
Item Name of financial statement or notes

(a) provision for warranty repairs Statement of financial position
(b) allowance for depreciation Notes
(c) issue of ordinary shares Statement of changes in equity
(d) finance expenses Statement of profit or loss and other
comprehensive income (profit or loss section)
(e) contingent liabilities Notes
(f) deferred tax asset Statement of financial position
(g) gain on revaluation of land (not Statement of profit or loss and other
reversing any previous devaluation) comprehensive income (other comprehensive
income section)
(h) audit fees Notes (showing split between audit fees and
other fees including the nature of other fees)
(i) change to the opening balance of Statement of changes in equity
retained earnings due to a correction
of a prior period error
(j) dividends paid and declared Statement of changes in equity
income (classify expenses by nature)
The following information was obtained for Neptune Ltd for the year ended 30 June
2017:
Net sales revenue $1 800 000
Gain on sale of equipment 60 000
Increase in inventories of finished goods and work in progress 50 000
Depreciation and amortisation expense 280 000
Employee benefits expense 400 000
Interest expense 8 000
Retained earnings (1/7/16) 120 000
Dividends paid 100 000
Transfer from general reserve 40 000
Raw materials used 600 000
Land 200 000
During the year land was revalued from $180 000 to $200 000.
Income tax rate is 30%.
Required
Prepare a statement of profit or loss and other comprehensive income for Neptune Ltd
for the year ended 30 June 2017 so as to comply with the requirements of AASB 101
(classify expenses by nature).
NEPTUNE LTD
Revenue $1800 000

Other income 60 000
Changes in inventories of finished goods and work in progress 50 000
Raw material used (600 000)
Depreciation and amortisation expense (280 000)
Employee benefits expense (400 000)
Note: The amount of dividends paid ($100 000) and the related amount per share must also
be disclosed either in the statement of changes in equity or in the notes (AASB 101,
paragraph 107).
income (classify expenses by nature)
The accountant at Venus Ltd has asked you to prepare the statement of profit or loss
and other comprehensive income for the year ended 30 June 2017 in accordance with
AASB 101 (classify expenses by nature). To assist, the following trial balance extract has
been provided:
Debit Credit
Sales revenue $5 725 000
Sales returns and allowances $ 56 100 72 500
Changes in inventories of finished goods and work in 390 500 23 000
progress 4 000 000 300 000
Raw materials used 675 000 1 500
Salaries and wages expense 125 000
Other employee benefits expenses 228 700
Interest paid 185 000
Interest received 343 500
Dividends received
Proceeds from sale of land
Cost of land sold
Sundry revenue
Depreciation and amortisation expense
The company tax rate is 30%.
VENUS LTD
Revenue* $ 5 765 900

Other income** 115 000
Changes in inventories of finished goods and work in progress (390 500)
Raw materials used (4 000 000)
Employee benefits expense*** (800 000)
Depreciation and amortisation expense (343 500)
Other comprehensive income nil
Workings:
*Revenue:
Sales $ 5 725 000
Sales returns and allowances (56 100)
Interest 72 500
Dividends 23 000
Sundry 1 500
5 765 900
**Other income
Proceeds on sale of land $ 300 000
Cost of land sold (185 000)
115 000
***Employee benefits expense

Salaries and wages $ (675 000)
Other employee benefits (125 000)
(800 000)
income (classify expenses by function)
The following information has been extracted from the accounting records of Pluto Ltd
for the year ended 30 June 2017:
Debit Credit
Sales $1 800 000
Dividends paid $ 10 000
Cost of sales 1 072 000
Finance costs 40 000
Distribution costs 116 000
Transfer from general reserve 16 000
Marketing costs 54 000
Administrative costs 104 000
Proceeds from sale of plant and machinery 60 000
Carrying amount of plant and machinery 40 000
Tax rate is 30%.
Required
Prepare a statement of profit or loss and other comprehensive income for Pluto Ltd, for
the year ended 30 June 2017, to comply with AASB 101 (classify expenses by function).
PLUTO LTD
Revenue $ 1800 000

Other income* 20 000
Distribution costs (116 000)
Marketing costs (54 000)
Administrative costs (104 000)
Note: The amount of dividends paid ($10 000) and the related amount per share must also be
disclosed either in the statement of changes in equity or in the notes (AASB 101, paragraph
107).
Workings:
*Other income:
Proceeds from sale of plant and machinery $ 60 000
Carrying amount of plant and machinery (40 000)
20 000
Question 15.8 Statement of financial position
The trial balance of Asteroid Ltd as at 30 June 2018 is as follows:
Debit Credit
($000) ($000)
Share capital 33 750
Calls in arrears 250
Calls in advance 1 000
Retained earnings 1 600
Mortgage payable on land and buildings 10 000
Accrued expenses 50
Land 5 100
Buildings 20 000
Fixtures and fittings 1 250
Accumulated depreciation:
Buildings 3 000
Fixtures and fittings 375
Goodwill 20 000
Current tax payable 395
Accounts receivable 3 185
Inventory 8 000
Bank overdraft 5 500
Accounts payable 1 000
Allowance for doubtful debts 80
Dividend payable 750
General reserve 500
Prepayments 215
$ 58 000 $ 58 000
Required
Prepare the statement of financial position for Asteroid Ltd in accordance with AASB
101 as at 30 June 2018.
ASTEROID LTD
Statement of Financial Position
as at 30 June 2018
$'000
ASSETS
Current assets
Trade and other receivables* 3 320
Inventories 8 000
Total current assets 11 320
Non-current assets
Property, plant and equipment** 22 975
Goodwill 20 000
Total non-current assets 42 975
Total assets 54 295
LIABILITIES
Current liabilities
Trade and other payables*** 1 800
Short-term borrowings 5 500
Current tax payable 395
Total current liabilities 7 695
Non-current liabilities
Long-term borrowings 10 000
Total non-current liabilities 10 000
Total liabilities 17 695
Net assets 36 600
EQUITY
Share capital**** 34 500
Reserves 500
Total equity 36 600
Workings:
$'000
*Trade and other receivables
Allowance for doubtful debts (80)
3 105
Prepayments 215
3 320
**Property, plant and equipment:

Land 5 100
Buildings 20 000
Accumulated depreciation (3 000) 17 000
Fixtures and fittings 1 250
Accumulated depreciation (375) 875
22 975
*** Trade and other payables
Accrued expenses 50
Dividend payable 750
1 800
****Share capital
Share capital 33 750
Calls in advance 1 000
Calls in arrears (250)
34 500
Question 15.9 Statement of changes in equity
The equity section of the statement of financial position of Comet Ltd at 30 June 2016
discloses:
2016 2015
Share capital $3 700 000 $3 600 000
General reserve 500 000 100 000
Revaluation surplus 800 000 240 000
Retained earnings 500 000 680 000
$5 500 000 $4 620 000
Additional information
(a) Comet Ltd issued 100 000 shares at $1 each during the year.
(b) Profit for the year was $300 000.
(c) Dividends paid during the year were $80 000.
(d) A transfer of $400 000 was made from retained earnings to general reserve during
the year.
(e) Land was revalued by $800 000 during the year.
(f) Tax rate is 30%.
Required
Prepare the statement of changes in equity for Comet Ltd for the year ended 30 June
2016.
COMET LTD
Statement of Changes in Equity
Share General Reval. Retained Total
capital reserve surplus earnings
Balance at 1 July 2015 $3 600 000 $ 100 000 $ 240 000 $ 680 000 $ 4 620 000
Total comprehensive income
for the year - - 560 000 300 000 860 000
Dividend paid - - - (80 000) (80 000)
Issue of share capital 100 000 - - - 100 000
Transfer to general reserve - 400 000 - (400 000) -
Balance at 30 June 2016 $3 700 000 $ 500 000 $ 800 000 $ 500 000 $ 5 500 000
Note: Insufficient information was provided in the question to determine dividend per share.
Question 15.10 Non-compliance with AASB 101
Moon Ltd is the parent company of two subsidiaries, Luna Ltd and Apollo Ltd, in
Australia. The financial statements of Moon Ltd have been prepared by a trainee
accountant and are shown below.
Profit or Loss Statement
Profit from operations $ 500 000
Income from government bonds 12 500
Dividends from subsidiaries 7 500
520 000
Profit for year 270 000
Retained profits at 1 July 2017 67 000
337 000
Interim dividends paid — preference $ (6 000)
shares (100 000)
— ordinary (6 000)
shares (125 000) $(237 000)
Final dividends declared — preference
shares
— ordinary
shares
Transfer to general reserve (50 000) (287 000)
Retained profits at 30 June 2018 $ 50 000
Statement of Assets, Liabilities and Equity
as at 30 June 2018
Shareholders’ equity Long-term assets
100 000 redeemable preference
shares, fully paid $ 200 000 Plant $2 300 000
2 000 000 ordinary shares, fully
paid 200 000 Accumulated depreciation (530 000) $ 1 770 000
Share capital 2 200 000 Freehold land and buildings 1 000 000
Revaluation surplus 100 000 Accumulated depreciation (180 000) 820 000
Investment property and
General reserve 150 000 intangible assets 770 000
Retained profits 50 000 Short-term assets
Total equity 2 500 000 Inventory 2 000 000 3 360 000
Debtors (less allowance for

Non-current liabilities impairment $20 000) 140 000
12% debentures $ 470 000 Cash at bank 100 000 440 000
Deferred tax liability 30 000 500 000
Current liabilities
Trade creditors 119 000
Dividends payable 131 000
Current tax liability 250 000 800 000
Provision for employee benefits 300 000
$3 800 000 $3 800 000
Additional information relevant to the presentation of these financial statements, but
not included as part of them, is as follows:
(a) Profit from operations is after charging:
Depreciation $ 300 000
Debenture interest 40 000
Employee benefits 50 000
Impairment of receivables 10 000
Audit and tax 20 000
(b) Freehold land was revalued by directors at the end of the current year at $600 000,
an increase of $100 000. Buildings on the land were valued at cost $400 000 less
accumulated depreciation $180 000.
Required
Indicate items in the financial statements of Moon Ltd that do not comply with the
disclosure requirements of AASB 101. For each item, state your reason(s) for
identifying it as not complying with AASB 101.
In order to comply with the disclosure requirements of AASB 101, many amendments are
necessary including:
1. Profit and loss statement is to be referred to as statement of profit or loss and other
comprehensive income, as per AASB 101.
2. Format and headings for the statement of profit or loss and other comprehensive
income should be as per the Implementation Guidance that accompanies IAS 1, to
disclose information contained in AASB 101 paragraphs 82, 82A and 85 as necessary.
Also see figure 15.9 of the text.
3. Separate headings for revenue, other income and expenses must be shown in the
statement of profit or loss and other comprehensive income, and the term “profit from
operations” is no longer suitable.
4. Expenses, classified according to nature or function should be disclosed in the
statement of profit or loss and other comprehensive income (AASB 101 paragraphs
99 – 105).
5. ‘Debenture interest’ expense ($40 000) must be included in the statement of profit or
loss and other comprehensive income under ‘finance costs’, and any interest payable
included under ‘trade and other payables’ in the statement of financial position.
6. ‘Retained profits’ is now referred to as ‘retained earnings’ in AASB 101 (paragraphs
96, 108 and 110).
7. Statement of assets, liabilities and equity should be referred to as the statement of
financial position, as per AASB 101.
8. Format and headings of the statement of financial position to be as per the
Implementation Guidance that accompanies IAS 1, to disclose items required by
AASB 101 paragraphs 54 and 55 as appropriate (see figure 15.2 of the text). Details
of information included under these headings are then to be provided in notes to the
financial statements.
9. AASB 101 paragraph 60, requires all assets and liabilities to be classified either as
current or non-current, unless a liquidity presentation is more appropriate to provide
relevant and reliable information.
10. ‘Investment property’ and ‘intangible assets’ must be disclosed as separate items in
the statement of financial position (AASB 101 paragraph 54).
Chapter 15: Disclosure: presentation of financial statements
11. A statement of changes in equity must be presented in accordance with AASB 101
paragraphs 106 and 107.
12. Various details of shares on issue at beginning and end of year, shares issued and
redeemed during year as per AASB 101 paragraph 79(a).
13. Disclose details of nature and purpose of each reserve (AASB 101 paragraph 79(b)).
14. Corresponding figures (including narrative and descriptive information) for the
preceding period (AASB 101 paragraph 38).
15. In the summary of significant accounting polices note, the measurement basis (bases)
used in the preparation of the financial statements and other accounting policies used
that are relevant to an understanding of the financial statements (AASB 101 paragraph
117).
16. Sources of estimation uncertainty should be disclosed in accordance with AASB 101
paragraph 125.
17. Audit fees paid or payable to the auditor for an audit or review of the financial
statements must be disclosed. Amounts for all other services must be disclosed
separately (including the nature and amount of the other services) as required by
AASB 1054 paragraph 10 and 11.
18. Company details (county of incorporation, description of the nature of the company’s
operations and its principal activities, etc.), if not provided elsewhere in the financial
report, must be disclosed (AASB 101 paragraph 138).
19. Details regarding the amount of dividends distributed to shareholders and the related
amount per share must be disclosed in the statement of changes in equity or in the
notes (AASB 101 paragraph 107).
20. A note disclosing those judgements, apart from those involving estimations, that
management has made in the process of applying the entity’s accounting policies that
have the most significant effect on the amounts recognised in the financial statements
(AASB 101 paragraph 122).
21. A company whose financial statements comply with International Financial Reporting
Standards shall make an explicit and unreserved statement of such compliance in the
© John Wiley and Sons Australia, Ltd 2015 15.1

Solutions manual to accompany Company Accounting 10e
Question 15.11 Non-compliance with AASB 101
Saturn Ltd’s financial statements for the year ended 30 June 2017 have been drafted by
the assistant accountant, who is not fully aware of the current disclosure requirements
of AASB 101. As a result, there are errors in the drafting.
Saturn Ltd is a listed public company. Income tax payable by the company is at the
rate of 30c in the dollar. The company’s draft financial statements appear below.
Required
From the draft financial statements of Saturn Ltd, identify ten items which have not
been disclosed or accounted for in accordance with AASB 101. The financial statements
are required to meet only the minimum disclosure requirements.
For each item, state your reason(s) for identifying it as being incorrectly disclosed in
accordance with AASB 101.
SATURN LTD
Profit or Loss Statement
Note 2017 2016
Operating profit before income tax 1 $ 95 000 $ 81 000
Income tax attributable to operating profit (44 000) (34 300)
Operating profit after income tax 51 000 46 700
Profit on extraordinary items 2 16 000 4 400
Income tax attributable to profit on (7 000) (2 200)
extraordinary items
Profit on extraordinary items after income 9 000 2 200
tax
Operating profit and extraordinary items 60 000 48 900
after income tax 52 900 28 000
Retained earnings at the beginning of the 8 500 1 000
financial year
Aggregate of amounts transferred from
reserves
Total available for appropriation 121 400 77 900
Dividends provided for or paid (30 000) (20 000)
Aggregate of amounts transferred to reserves (12 000) (5 000)
Retained profits at the end of the financial $ 79 400 $ 52 900
year
The attached notes elaborate on these
SATURN LTD
Statement of Net Equity
as at 30 June 2017
Note 2017 2016
Current assets
Cash $ 55 000 $ 50 000
Inventories 175 000 160 000
Receivables 185 000 170 000
Total current assets 415 000 380 000
Non-current assets

Investments 3 80 000 75 000

Property, plant and equipment 365 000 245 000
Intangibles 90 000 90 000
Other 4 40 000 35 000
Total non-current assets 575 000 445 000
Liabilities
Creditors and borrowings 5 510 100 480 100
Provisions 6 85 000 80 000
Total liabilities 595 100 560 100
Net assets $394 900 $264 900
Shareholders’ equity
Paid-up capital 7 $300 000 $200 000
Reserves 8 94 900 64 900
Total equity $394 900 $264 900
The attached notes elaborate on these
Notes to the financial statements

(for the year ended 30 June) 2017 2016
1. Operating profit before income tax
Operating profit before income tax has been
determined after:
Crediting as revenue: $ 13 000 $ 12 000
interest (received or receivable from other persons) 18 000 15 000
dividends (received or receivable from other
persons) 7 000 5 000
Debiting as expense: 3 500 3 000
annual leave (transfer to provision) 5 000 4 000
impairment of receivables 11 500 12 000
long-service leave (transfer to provision) 7 000 7 000
depreciation – property, plant and equipment 15 000 10 000
interest (paid or payable to other persons)
audit and tax
2. Profit on extraordinary items
The total shown comprises: 16 000 4 400
Profit on sale of segment of the business (7 000) (2 200)
Income tax applicable thereto
9 000 2 200
3. Investments
Shares and investment properties 80 000 75 000
4. Other non-current assets
Deferred tax asset 40 000 35 000
5. Creditors and borrowings
Bank overdraft – secured 120 600 125 100
Trade creditors 389 500 355 000
510 100 480 100
6. Provisions
Income tax 32 000 31 000
Dividends 20 000 20 000
Employee benefits 15 000 13 000

Deferred tax 18 000 16 000

85 000 80 000
7. Paid-up capital
300 000 ordinary shares, fully paid 300 000 200 000
8. Reserves
General reserve 15 500 12 000
Retained profits 79 400 52 900
94 900 64 900
Answer for each item should identify the error and state the reason for it being incorrectly
disclosed in accordance with AASB 101. Incorrect items in terms of minimum disclosure
include:
1. Profit and loss statement should be referred to as the statement of profit or loss and
other comprehensive income, as per AASB 101.
2. Format and headings for the statement of profit or loss and other comprehensive
income should be as per the Implementation Guidance that accompanies IAS 1, to
disclose information contained in AASB 101 paragraphs 82, 82A and 85 as necessary.
Also see figure 15.9 of the text.
3. Expenses can be disclosed in the statement of profit or loss and other comprehensive
income. Interest expense to be shown in the statement of profit or loss and other
comprehensive income under the heading ‘finance costs’ (AASB 101 paragraph
82(b)).
4. ‘Extraordinary items’ (income or expense) are not to be presented either in the
statement of profit or loss and other comprehensive income or in the notes (AASB
101 paragraph 87).
5. Statement of net equity should be referred to statement of financial position, as per
AASB 101.
6. ‘Retained profits’ is now referred to as ‘retained earnings’ in AASB 101 (paragraphs
96, 108 and 110).
7. Format and headings of the statement of financial position to be as per the
Implementation Guidance that accompanies IAS 1, to disclose items required by
AASB 101 paragraphs 54 and 55 as appropriate (see figure 15.2 of the text). Details
of information included under these headings are then to be provided in notes to the
8. A statement of changes in equity must be presented in accordance with AASB 101
paragraphs 106 and 107.
9. There is no disclosure in relation to the shares issued during the period as required by
AASB 101 paragraph 79(a).
10. Disclose details of nature and purpose of each reserve (AASB 101 paragraph 79(b)).
11. ‘Creditors and borrowings’ should be separately disclosed in the statement of
financial position under the headings ‘trade and other payables’ and ‘borrowings’ or
financial liabilities as required by AASB 101 paragraph 54 and the Implementation
Guidance.
12. The reserves note is incorrect, as retained earnings (profits) are included in the
reserves figure. AASB 101 (paragraphs 106(d) and 108) and the Implementation
Guidance require retained earnings to be shown separately from other components of
equity in the statement of financial position.

13. ‘Deferred tax asset’ to be disclosed as a separate heading in the statement of financial
position according to AASB 101 paragraph 54(o) and the Implementation Guidance,
not under ‘other non-current assets’.
14. ‘Deferred tax liability’ to be disclosed as a separate heading in the statement of
financial position according to AASB 101 paragraph 54(o) and the Implementation
Guidance, not under ‘Provisions’.
15. ‘Provision for dividend’ is not a provision as there is no uncertainty as to timing or
amount. Dividends should be treated as part of ‘trade and other payables’ (see
chapter 3).
16. In the summary of significant accounting polices note, the measurement basis (bases)
used in the preparation of the financial statements and other accounting policies used
that are relevant to an understanding of the financial statements (AASB 101 paragraph
117).
17. Sources of estimation uncertainty should be disclosed in accordance with AASB 101
paragraph 125.
18. Audit fees paid or payable to the auditor for an audit or review of the financial
statements must be disclosed. Amounts for all other services must be disclosed
separately (including the nature and amount of the other services) as required by
AASB 1054 paragraphs 10 and 11.
19. Company details (county of incorporation, description of the nature of the company’s
operations and its principal activities, etc.), if not provided elsewhere in the financial
report, must be disclosed (AASB 101 paragraph 138).
20. Details regarding the amount of dividends distributed to shareholders and the related
amount per share must be disclosed in the statement of changes in equity or in the
21. A note disclosing those judgements, apart from those involving estimations, that
management has made in the process of applying the entity’s accounting policies that
have the most significant effect on the amounts recognised in the financial statements
(AASB 101 paragraph 122).
22. A company whose financial statements comply with International Financial Reporting
Standards shall make an explicit and unreserved statement of such compliance in the

Question 15.12 Statement of financial position, statement of changes in

equity and notes
A junior accounts clerk has prepared the following summarised information as at 30
June 2016 for Earth Ltd:
Assets
Inventories (at lower of cost and net realisable value) $ 970 000
Cash 1 598 080
Land and buildings 1 750 000
Plant and equipment 1 716 000
Prepayments 3 400
Calls in arrears (2500 shares at 20c) 500
Patents — cost 100 000
$6 789 000
Liabilities and equity
Liabilities 1 038 520
Share capital (5 000 000 shares) 4 086 000
Reserves and provisions 1 089 000
$6 789 000
Upon further investigation, you have discovered the following additional information:
(a) Liabilities of $1 038 520 comprise:
Accounts payable $790 000
Accrued expenses 8 520
Mortgage loans 240 000
(b) Reserves and provisions of $1 089 000 include:

Employee benefits (payable after 1 $400 000
July 2023) 160 000
Current tax liability 200 000
Dividends 10 000
Allowance for impairment of 72 000
receivables 207 000
Accumulated depreciation – plant 40 000
and equipment
Accumulated depreciation – buildings
Accumulated amortisation – patents
(c) Cash of $1 598 080 consists of:

Cash at bank $ 298 080
10% Telstra bonds (regarded as long-term 1 300 000
investments)
(d) Retained earnings balance as at 1 July 2015 was $275 000.

(e) Profit for the period was $500 480.
(f) Shareholder approval is not required for final dividends declared by directors.
(g) During the year, Earth Ltd paid $75 000 to its auditor, of which $19 000 related to
services other than the annual audit and half-yearly review.

Required
Prepare, for Earth Ltd, the statement of financial position, statement of changes in
equity and notes thereto at 30 June 2016 in accordance with the requirements of AASB
101.
EARTH LTD
as at 30 June 2016
Note
ASSETS
Current assets
Cash and cash equivalents $ 298 080
Trade and other receivables 2 644 420
Inventories 3 970 000
Total current assets 1 912 500
Non-current assets
Property, plant and equipment 4 3 187 000
Intangible assets 5 60 000
Investments 6 1 300 000
Total non-current assets 4 547 000
Total assets $ 6 459 500
LIABILITIES
Current liabilities
Trade and other payables 7 998 520
Current tax payable 160 000
Total current liabilities 1 158 520
Long-term borrowings 8 240 000
Long-term provisions 9 400 000
Total liabilities $1 798 520
Net assets $ 4 660 980
EQUITY
Share capital 10 4 085 500
Total equity $ 4 660 980

EARTH LTD
Share Retained Total
capital earnings
Balance at 1 July 2015 $ 4 085 500 $ 275 000 $ 4 360 500
for the year - 500 480 500 480
Dividend payable – ordinary - (200 000) (200 000)
Balance at 30 June 2016 $ 4 085 500 $ 575 480 $ 4 660 980
Dividends: 4 cents per share
EARTH LTD
Notes to and forming part of the financial statements for the year ending 30 June 2016
Note 1. Summary of significant accounting policies

Statement of compliance
The financial statements are general purpose financial statements which have been prepared
in accordance with the requirements of the Corporations Act 2001, Australian Accounting
Standards which include Australian equivalents to International Financial Reporting
Standards (AIFRSs) and AASB Interpretations. Compliance with AIFRSs ensures the
financial statements and notes comply with International Financial Reporting Standards.
Basis of preparation
The financial statements have been prepared on the historical cost basis, except where stated
otherwise.
Various accounting policies details need to be provided, including details required by AASB
101 paragraph 122 (management judgements made in applying accounting polices) and
paragraph 125 (sources of estimation uncertainty).
Note 2. Trade and other receivables

Accounts receivable $ 651 020
Allowance for impairment of receivables (10 000)
641 020
Prepaid expenses 3 400
644 420
Note 3. Inventories
Raw materials $x
Work in progress x
Finished goods x
970 000

Note 4. Property, plant and equipment

Land & Plant & Total
buildings equipment
Balance $ 1 750 000 $ 1 716 000 $ 3 466 000

Accumulated depreciation (207 000) (72 000) (279 000)
1 543 000 1 644 000 3 187 000
Note 5. Intangible assets

Patents
Balance $ 100 000
Accumulated amortisation (40 000)
60 000
Note 6. Investments
10% Telstra bonds - at cost $1 300 000
Note 7. Trade and other payables

Accounts payable $ 790 000
Accrued expenses 8 520
Dividends 200 000
998 520
Note 8. Long-term borrowings

Mortgage loans $ 240 000
Note 9. Long-term provisions

Employee benefits $ 400 000
Note 10. Share capital

Share capital $ 4 086 000
Calls in arrears (2 500 shares at 20 cents per share) (500)
4 085 500
Note 11. Audit fees
Amounts paid or payable to the auditor for:
- audit or review of the financial reports of the entity $ 56 000
- other services:
 (details not provided in question) 19 000
75 000

Question 15.13 Statement of financial position, statement of changes in

equity and notes
Mercury Ltd has suffered losses consistently during recent years, and after preparation
of the statement of profit or loss and other comprehensive income for the year ended 30
June 2018 the ledger balances were:
Share capital (1 250 000 shares at $1) $ 625 000

Easy Finance Company — loan 125 000
Allowance for impairment of receivables 100 000
Inventories (work in progress and finished 347 500
goods)
Plant and equipment 240 000
Accumulated depreciation – plant 112 500
Accumulated losses 186 000
ABC Bank Limited — overdraft (short-term) 50 000
— long-term loan 100 000
Goodwill 250 000
$1 363 500 $1 363 500
(a) The loan from Easy Finance matures on 31 December 2018.
(b) The auditing firm was paid a total of $30 000, comprising $22 500 for the annual
audit, $2500 for taxation advice, and $5000 for consulting advice paid to a related
practice of the auditor.
(c) On 1 March 2018, 125 000 ordinary shares were issued at a price of $1 payable in
full.
(d) Balance of retained earnings at 1 July 2017 was $139 370 Dr and loss for the current
year was $46 630.
Required
Prepare the statement of financial position and statement of changes in equity as at 30
June 2018, and notes to comply with AASB 101.
MERCURY LTD
as at 30 June 2018
Note
ASSETS
Current assets
Trade and other receivables 2 $ 240 000
Inventories 3 347 500

Non-current assets
Property, plant and equipment 4 127 500
Goodwill 250 000
Total assets $ 965 000
LIABILITIES
Current liabilities
Trade and other payables 5 $ 245 000
Short-term borrowings 6 175 000
Long-term borrowings 7 100 000
Total liabilities $ 526 000
Net assets $ 439 000
EQUITY
Share capital $ 625 000
Retained earnings (186 000)
Total equity $ 439 000
MERCURY LTD
Share Retained Total
capital earnings
Balance at 1 July 2017 $ 500 000 $ (139 370) $ 360 630
for the year - (46 630) (46 630)
Issue of ordinary shares 125 000 - 125 000
Balance at 30 June 2018 $ 625 000 $ (186 000) $ 439 000
MERCURY LTD
Notes to and forming part of the financial statements for the year ending 30 June 2018
Note 1. Summary of significant accounting policies

Statement of compliance
The financial statements are general purpose financial statements which have been prepared
in accordance with the requirements of the Corporations Act 2001, Australian Accounting
Standards which include Australian equivalents to International Financial Reporting
Standards (AIFRSs) and AASB Interpretations. Compliance with AIFRSs ensures the
financial statements and notes comply with International Financial Reporting Standards.

Basis of preparation
The financial statements have been prepared on the historical cost basis, except where stated
otherwise.
Various accounting policies details need to be provided, including details required by AASB
101 paragraph 122 (management judgements made in applying accounting polices) and
paragraph 125 (sources of estimation uncertainty).
Note 2. Trade and other receivables

Allowance for impairment of receivables (100 000)
240 000
Note 3. Inventories
Work in progress $x
Finished goods x
347 500
Note 4. Property, plant and equipment

Plant & Total
equipment
Balance $ 240 000 $ 240 000
Accumulated depreciation (112 500) (112 500)
127 500 127 500
Note 5. Trade and other payables
Note 6. Short-term borrowings

Bank overdraft $ 50 000
Loan 125 000
175 000
Note 7. Long-term borrowings
Bank term loan $ 100 000
Note 8. Audit fees

Amounts paid or payable to the auditor for:
- audit or review of the financial reports of the entity $ 22 500
- other services:
 taxation advice 2 500
consulting advice 5 000
30 000

Question 15.14
The following details are taken from the accounting records of Mars Ltd as at 30 June
2016:
Debit Credit
Plant and equipment (net of depreciation) $ 800 000
Land 600 000
Buildings (net of depreciation) 900 000
Investments (long-term) 460 000
Allowance for impairment of receivables $ 60 000
Inventory 520 000
Bank overdraft 200 000
Dividend payable 256 000
Goodwill (net of impairment)
Share capital (3 200 000 shares) 300 000 2 400 000
General reserve 290 000
Income tax payable 249 000
Other debtors 50 000
$4 230 000 $4 230 000
(a) Profit for the year was $581 000.
(b) Balance of retained earnings at 1 July 2015 was $80 000.
(c) During the year $30 000 was transferred from retained earnings to general reserve.
(d) A final dividend of 8c per share has been declared by directors and is not subject to
shareholders’ approval.
Required
Prepare the statement of financial position and statement of changes in equity to comply
with AASB 101.
MARS LTD
as at 30 June 2016
ASSETS
Current assets
Trade and other receivables* $ 590 000
Inventories 520 000
Non-current assets
Property, plant and equipment** 2 300 000
Goodwill 300 000

Investments 460 000

Total non-current assets 3 060 000
LIABILITIES
Current liabilities
Trade and other payables*** $ 656 000
Short-term borrowings 200 000
Total current liabilities 1 105 000
Total liabilities $ 1 105 000
EQUITY
Reserves 290 000

MARS LTD
Share General Retained Total
capital reserve earnings
Balance at 1 July 2015 $ 2 400 000 $ 260 000 $ 80 000 $ 2 740 000
for the year - - 581 000 581 000
Dividend payable – ordinary - - (256 000) (256 000)
Transfer to general reserve - 30 000 (30 000) -
Balance at 30 June 2016 $ 2 400 000 $ 290 000 $ 375 000 $ 3 065 000
Workings:
*Trade and other receivables

Allowance for doubtful debts (60 000)
540 000
Other debtors 50 000
590 000
**Property, plant and equipment

Land & buildings $ 1 500 000
Plant & machinery 800 000
2 300 000
***Trade and other payables

Dividend payable [3 200 000 shares x 8 cents per share] 256 000
656 000


income (classify expenses by function), statement of
financial position and statement of changes in equity
Refer to the information in practice question 3.8 for Aster Ltd on page 145.
Required
A. Prepare a statement of profit or loss and other comprehensive income for Aster
Ltd in accordance with the requirements of AASB 101 (classify expenses by
function).
B. Prepare a statement of financial position for Aster Ltd in accordance with AASB
101. Use the current/non-current presentation format.
C. Prepare a statement of changes in equity for Aster Ltd in accordance with the
requirements of AASB 101.
A.
ASTER LTD
Sales revenue $ 882 680

Cost of goods sold (694 000)
Other income* 11 320
Selling expenses (82 000)
Administrative and general expenses (51 000)
Depreciation** (34 000)
Financial expenses*** (10 000)
Workings:
*Other income:
Dividends $ 10 000
Interest 1 320
11 320
**Depreciation:
Plant and machinery $ 30 000
Buildings 4 000

34 000
***Financial expenses:
Financial expenses $ 17 000
Less Finance costs (7 000)
10 000
B.
ASTER LTD
as at 30 June 2017
ASSETS
Current assets
Trade and other receivables* $ 46 000
Inventories 46 000
Non-current assets
Goodwill 30 000
Investments*** 97 000
Total assets $ 355 000
LIABILITIES
Current liabilities
Trade and other payables**** $ 39 600
Long-term borrowings***** 40 000
EQUITY
Reserves 6 000
Workings:
*Trade and other receivables:
46 000


Freehold land $ 40 000
Buildings 80 000
Accumulated depreciation [30 000 + 4 000] (34 000) 46 000
Plant and machinery 150 000
136 000
***Investments:
6% Government bonds $ 22 000
Shares in other companies 75 000
97 000
****Trade and other payables:

Dividend payable (120 000 shares x 8 cents per share) 9 600
39 600
*****Long-term borrowings:
Bank loan (due 2020) $ 24 000
Mortgage payable 16 000
40 000
C.
ASTER LTD
Share Conting. Retained Total
capital reserve earnings
Balance at 1 July 2016 $ 240 000 $ 16 000 $ 13 000 $ 269 000
for the year - - 11 200 11 200
Dividend declared - - (9 600) (9 600)
Transfer to retained earnings - (10 000) 10 000 -
Balance at 30 June 2017 $ 240 000 $ 6 000 $ 24 600 $ 270 600


income (classify expenses by function), statement of
The trial balance of Black Hole Ltd at 30 June 2018 was as follows:
Debit Credit
Share capital (ordinary shares issued at $2, $ 200 000
fully paid) 25 000
General reserve 128 400
Revaluation surplus 250 000
Mortgage loan 69 200
Bank overdraft (at call) 80 000
7% debentures 2 800
Interest payable 69 500
Provision for employee benefits 18 400
Deferred tax liability 12 800
Allowance for doubtful debts 42 500
Accumulated depreciation – plant and 10 000
equipment $ 500
Accumulated impairment – goodwill 58 000
Cash 87 700
Inventory
Prepaid insurance
Plant and equipment 222 500
Land 220 000
Buildings 380 000
Goodwill 105 000
Deferred tax asset 9 800
Sales revenue 825 000
Cost of sales 450 000
Administrative expenses 265 000
Interest revenue 2 500
Dividends revenue 3 500
Income tax expense 50 400
Dividends paid 20 000
Dividends declared 10 000
Transfer to general reserve 25 000
$1 920 900 $1 920 900
(a) Administrative expenses for the year include interest expense of $28 700.
(b) All assets are carried at cost, except for land and buildings which are carried at
valuation.
(c) During the year, 50 000 shares were issued at an issue price of $2 each, payable in

full on application.
(d) On 30 June 2018, the directors revalued land and buildings. The revaluation was
based on an independent valuation received from FJ Holden, Registered Valuer. The
valuation was based on fair values. The carrying amounts of land and buildings
before the revaluation were $195 000 and $350 000 respectively.
(e) The mortgage loan is repayable in annual instalments of $50 000 due on 1 March
each year.
(f) The 7% debentures are to be redeemed on 31 March 2019. There is no plan to
refinance these debentures in the future.
(g) The provision for employee benefits consists of:
Annual leave $18 000
Long-service leave 16 200
(h) No employee is eligible for long-service leave until 2022.
(i) The company tax rate is 30%.
Required
A. Prepare a statement of profit or loss and other comprehensive income for Black Hole
Ltd for the year ended 30 June 2018, according to the requirements of AASB 101
(classify expenses by function).
B. Prepare a statement of financial position for Black Hole Ltd as at 30 June 2018 to
comply with AASB 101.
C. Prepare a statement of changes in equity for Black Hole Ltd for the year ended 30
June 2018, according to the requirements of AASB 101.
A.
BLACK HOLE LTD
Sales revenue $ 825 000

Other income* 6 000
Administrative expenses** (236 300)
Gain on revaluation of buildings 30 000

Workings:
*Other income:
Interest $ 2 500
Dividends 3 500
6 000
** Administrative expenses:
Administrative expenses $ 265 000
Less Interest expense (28 700)
236 300
B.
BLACK HOLE LTD
as at 30 June 2018
ASSETS
Current asets
Cash and cash equivalents $ 500
Inventories 87 700
Non-current assets
Deferred tax asset 9 800
Goodwill*** 95 000
LIABILITIES
Current liabilities
Trade and other payables**** $ 82 300
Short-term borrowings***** 149 200
Current portion of long-term borrowings 50 000
Short-term provisions 18 000
Long-term borrowings****** 200 000
Deferred tax liability 18 400
Long-term provisions 16 200

EQUITY
Reserves 110 000
Workings:

Prepaid insurance 7 000
52 200
Land $ 220 000
Buildings 380 000
Plant and equipment $ 222 500
Accumulated depreciation (42 500) 180 000
780 000
***Goodwill:
Goodwill $ 105 000
Accumulated impairment (10 000)
95 000
****Trade and other payables:

Interest payable $ 2 800
82 300
***** Short-term borrowings:

Bank overdraft (at call) $ 69 200
7% Debentures 80 000
149 200
******Long-term borrowings:
Mortgage loan $ 250 000
Less instalment payable 1 March 2019 (50 000)
200 000
C.
BLACK HOLE LTD

Balance at 1 July 2017 $ 100 000 - $ 46 500 $ 128 400 $ 274 900

for the year - - 38 500 55 600 94 100

Issue of share capital 100 000 - - - 100 000
Dividend paid – ordinary - - - (20 000) (20 000)
Dividend declared – ordinary - - - (10 000) (10 000)
Balance at 30 June 2018 $ 200 000 $ 25 000 $ 85 000 $ 129 000 $ 439 000
Dividends: 30 cents per share (assuming shares issued during the year entitled to dividends
paid and declared).


income (classify expenses by nature), statement of
The summarised trial balance of Star Ltd as at 30 June 2017 is shown below.
Debit Credit
Ordinary share capital (1 500 000 shares) $1 062 500
General reserve (1/7/16) 175 000
Revaluation surplus (1/7/16) 60 000
Bank loan (long-term) 43 500
Deferred tax liability (1/7/16) 3 000
Mortgage (long-term) 50 000
Provision for employee benefits (long-term) 75 000
Allowance for doubtful debts 37 500
Accumulated depreciation:
Plant 9 500
Office furniture 850
Buildings 2 500
Land (at cost) $ 211 500
Factory buildings (at cost) 250 000
Plant (at cost) 90 000
Inventory 651 100
Office furniture (at cost) 6 000
Goodwill 200 000
Cash at bank 278 800
Employee benefits expense 12 500
Sales 1 730 500
Raw materials and consumables used 1 083 100
Changes in inventories of finished goods and 3 100
work in progress
Other expenses (excluding depreciation but
including interest expense $31 000 on bank 163 500
loan and mortgage)
$3 489 450 $3 489 450
The accountant for the company seeks your assistance in preparing the financial
statements for external reporting purposes and advises you of the following information
that needs to be taken into account before finalising the financial statements.
(a) Depreciation is to be provided for:
Plant $9 000
Buildings 2 500
(b) The estimated total income tax expense relating to profit or loss items only for 2017
is $200 000, consisting of $150 000 for the current liability and $50 000 as a deferred
tax liability.
(c) Final dividends of 2 cents per share were declared by directors.
(d) Directors decided to transfer $10 000 from retained earnings to general reserve.

(e) Following expert advice, the directors decided on 30 June 2017 to revalue the land
and factory buildings to reflect current fair values. Consequently, directors placed a
value of $300 000 on land and $350 000 on the buildings.
(f) Company tax rate is 30%.
Required
Based on the ledger balances and the additional information provided, prepare a
statement of profit or loss and other comprehensive income (classify expenses by
nature), a statement of financial position and a statement of changes in equity for Star
Ltd for the year ended 30 June 2017, to comply with AASB 101.
STAR LTD
Revenue $ 1 730 500
Changes in inventories of finished goods and
work in progress 3 100
Raw materials and consumables used (1 083 100)
Employee benefits expense (12 500)
Depreciation* (12 300)
Other expenses** (132 500)
Profit for the period 262 200
Gain on revaluation of land*** 88 500
Gain on revaluation of buildings*** 105 000
Workings:
*Depreciation:
Plant $ 9 000
Buildings 2 500
12 300
**Other expenses:
Other expenses $ 163 500
Less interest expense (31 000)
132 500
***Gain arising during the year on revaluation of:
Land (300 000 –211 500) $ 88 500
Buildings (350 000 – (250 000 – (2 500 acc. dep. + 2 500 dep.))) 105 000

STAR LTD
as at 30 June 2017
ASSETS
Current assets
Cash and cash equivalents $ 278 800
Inventories 651 100
Non-current assets
Goodwill 200 000
LIABILITIES
Current liabilities
Trade and other payables*** $ 162 000
Long-term borrowings**** 93 500
Deferred tax liabilities***** 111 050
Long-term provisions 75 000
EQUITY
Reserves 380 450
Workings:

505 450


Freehold land $300 000
Factory buildings 350 000
650 000
Plant 90 000
Office furniture 6 000
Accumulated depreciation [850 + 800] (1 650) 4 350
725 850
***Trade and other payables:

Dividend payable (1 500 000 shares x 2 cents per share) 30 000
162 000
****Long-term borrowings:
Bank loan $ 43 500
Mortgage 50 000
93 500
***** Deferred tax liabilities:

Balance 1/7/2016 $ 3 000
Deferred tax portion of income tax expense 50 000
Revaluation of:
Land (30% x [300 000 – 211 500]) 26 550
Buildings (30% x [350 000 – (250 000 – (2 500 + 2 500)]) )31 500 58 050
111 050
STAR LTD

Balance at 1 July 2016 $ 1 062 500 $ 175 000 $ 60 000 $ 104 500 $ 1 402 000
for the year - - 135 450 262 200 397 650
Dividend declared – ordinary - - - (30 000) (30 000)

Balance at 30 June 2017 $ 1 062 500 $ 185 000 $ 195 450 $ 326 700 $ 1 769 650

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Company Accounting 10e

© John Wiley & Sons Australia, Ltd 2015

1. What constitutes a complete set of financial statements?

According to paragraph 10 of AASB 101, a complete set of financial statements comprises:

Paragraph 38 of AASB 101 requires disclosure of comparative financial information in

According to paragraph 38A of AASB 101:

If the presentation or classification of items in the financial statements is changed,

Comparative information must also be adjusted for changes in accounting policy or

These three statements of financial position must be presented at:

6. A current asset is an asset expected to be realised within an entity’s normal

9. What items comprise other comprehensive income?

Other comprehensive income comprises items of income and expense (including

Reclassification adjustments are amounts that were recognised in other comprehensive

Paragraph 93 of AASB 101 explains reclassification adjustments as follows:

11. How is total comprehensive income determined?

In summary this may be expressed as follows:

Components of other comprehensive income include:

16. AASB 101 requires certain information to be disclosed in financial statements. In

Note: assets/liabilities may be disclosed under the sub-headings of current/non-current

Case Study 3 Measurement basis used

a) whether financial assets are held-to-maturity investments;

According to paragraph 10A of AASB 101, an entity may present:

Question 15.1 Statement of profit or loss and other comprehensive

FINAL FRONTIER LTD

Revenue $ 1 116 000

AASB 101 requires certain information to be disclosed in statement of financial

Item Name of line item in the statement of Classification

AASB 101 requires certain information to be disclosed in financial statements. In

AASB 101 requires certain information to be disclosed in financial statements and in

Item Name of financial statement or notes

Revenue $1800 000

Revenue* $ 5 765 900

***Employee benefits expense

Tax rate is 30%.

Revenue $ 1800 000

Net assets 36 600

**Property, plant and equipment:

Debtors (less allowance for

© John Wiley and Sons Australia, Ltd 2015 15.1

Question 15.11 Non-compliance with AASB 101

© John Wiley and Sons Australia, Ltd 2015 15.2

Investments 3 80 000 75 000

Notes to the financial statements

© John Wiley and Sons Australia, Ltd 2015 15.3

Deferred tax 18 000 16 000

© John Wiley and Sons Australia, Ltd 2015 15.4

© John Wiley and Sons Australia, Ltd 2015 15.5

Question 15.12 Statement of financial position, statement of changes in

(b) Reserves and provisions of $1 089 000 include:

(c) Cash of $1 598 080 consists of:

(d) Retained earnings balance as at 1 July 2015 was $275 000.

© John Wiley and Sons Australia, Ltd 2015 15.6

Net assets $ 4 660 980

© John Wiley and Sons Australia, Ltd 2015 15.7

Dividends: 4 cents per share

Note 1. Summary of significant accounting policies

Note 2. Trade and other receivables

© John Wiley and Sons Australia, Ltd 2015 15.8

Note 4. Property, plant and equipment

Balance $ 1 750 000 $ 1 716 000 $ 3 466 000

Note 5. Intangible assets

Note 7. Trade and other payables