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Chapter 1:
CQ 2. Describe the standard-setting process of the AASB.
The standard-setting process of the AASB is a standard that comes out by the board.
Technical issues may be identified by international standards organizations, such as the IASB
or the Financial Accounting Standards Board (FASB) in the United States. They may
alternatively be identified by sources within Australia, such as members or staff of the AASB
or other stakeholders. Besides, Australian organizations and individuals may also be
identified the technical issues. Australian stakeholders can advise the AASB of issues that in
their view should be considered by the AASB. For example, the issues may be raised in the
context of improving the relevance and reliability of financial information or reducing the
costs of financial reporting.
Once the technical issue identified, AASB will develop a project proposal. Project
proposal contains an assessment of the potential benefits of undertaking the project, the costs
of not undertaking it, the resources available and the likely timing. Then, AASB will review
the project proposal and make a decision as to whether the project is worthwhile and should
be placed on its agenda.
When an item has been added to the board’s agenda and it has researched and
considered an issue, consultation with stakeholders may proceed with the issue of exposure
drafts, invitations to comment, draft interpretations and discussion papers. Exposure drafts
issued by the AASB often incorporate exposure drafts issued by the IASB, along with
Australian-specific matters for comment as applicable. Exposure drafts can be accessed on
the AASB’s website. The consultation process may involve roundtable discussions with
stakeholders and consultation with focus groups, project advisory panels and interpretation
advisory panels, as well as the receipt of submissions in response to exposure drafts and other
documentation on which the AASB publicly invites comment.
After that, AASB takes input received from Australian organizations and individuals
into account when preparing its submissions to international organizations. Then, the AASB
requests formal comment letters (submissions) and other input from stakeholders on the
AASB’s own proposals and in relation to various consultative documents issued by the IASB
and IPSASB. The AASB considers this input in making submissions to the IASB and
IPSASB and in developing its own pronouncements.
Australia has adopted International Financial Reporting Standards since 2005. Hence
technical issues on the IASB work program are also included on the AASB work program.
The AASB Board members and staff can identify issues requiring consideration. Some of
these issues can be referred in the IASB for consideration and some can be addressed
domestically. In fact, the issue of an accounting standard by the IASB would result in a
corresponding and consistent standard being issued by the AASB. The text of the
international accounting standard may be modified to the extent necessary to take account of
the Australian legal or institutional environment and, in particular, to ensure that any
disclosure and transparency provisions in the standard are appropriate to the Australian legal
or institutional environment. This is often reflected in modifications to standards for
application by not-for-profit entities in Australia.
Explain how Q Ltd should account for the following items/situations, justifying your answers
by reference to the conceptual framework’s definitions and recognition criteria.
Required
a. You have no reason to believe the employee will default on the loan.
Not recognized as liability
b. As the employee is in serious financial difficulties, you think it likely that he will
default on the loan.
Guarantee – Liability
3. Q Ltd receives 1000 shares in X Ltd, trading at $4 each, as a gift from a grateful
client.
Recognized as Asset, Income. Can get dividend, can sell, control by Q Ltd, so it meets
the asset criteria.
4. The panoramic view of the coast from Q Ltd’s café windows, which you are
convinced attracts customers to the café.
Cannot recognized view as asset, cannot control the view because it is nature.
5. The court has ordered Q Ltd to repair the environmental damage it caused to the local
river system. You have no idea how much this repair work will cost.
Liabilities and Expenses. Cannot recognized as liabilities as we don’t know the
amount of repair work. So, it is under contingent liabilities. (future liabilities)
Chapter 13:
EX 13.5. Dividends
The directors of Surf Ltd are preparing the annual report for the company at 30 June 2019.
The directors anticipate that the company will pay a dividend of $1.00 per share subsequent
to the annual general meeting scheduled for 13 August 2019. This information will be
included in the directors’ report as well as in a release to the public concerning the annual
performance of the company.
The group accountant of Surf Ltd is unsure as to whether or not the dividend should be
shown as a liability in the statement of financial position at 30 June 2019.
Required
Provide a recommendation to the group accountant on what action should be undertaken in
relation to accounting for the dividend.
Sunshine Ltd undertook the following transactions during the financial year ended 30 June
2019.
c. Transferred $104 000 from the asset revaluation surplus to the general reserve
subsequent to the sale of an item of plant that was measured using the revaluation
model
d. Used the general reserve to fund the payment of 480 000 bonus shares, these being
issued at $2 per share. Existing shareholders give extra shares
Required
Prepare the journal entries in relation to these events.
SUNSHINE LTD
a) General reserve Dr $68 000
Transfer from general reserve Cr $68 000
(Transfer between reserves)
Normally in Equity
General Reserves – always a credit balances
Retained Earnings – always a credit balances