Balance Sheet and Accounting Standards

function SHEET STUDENTS SUR give ear other NAMES STUDENT NUMBER TUTORIAL mean solar day & TIME TUTORS FULL NAME Test 1 Version 2 academic term 2, 2012 Course Code ACCG 224 Course Name median(a) FINANCIAL ACCOUNTING Time e very(prenominal)(prenominal)owed 55 proceedings plus 5 minutes reading cartridge clip Total No. of questions Three head words Instructions 1. You moldiness assistant ALL questions in the test booklet. No separate booklet will be provided to answer the questions. . This is a closed-book test. You ar not all in allowed to refer to every(prenominal) text material for the test. 3. Show all doings. script must be legible. 4. Non-programmable and non-text retrieval calculators may be used, but dictionaries argon not to be used. Question No. Marks 1 /15 2 /15 3 /10 Total /40 Question 1 Multiple Choice (15 marks) (Please hardening the correct answer) 1. The main functions of the Financial Reporting Council complicate I. II. leash. IV. V. a. b. * c. d. overseeing the process for the setting of be bars of the AASB. determining the AASBs massive strategic direction. onitoring and reviewing the level of funding for the AASB. directing the AASB in relation to the development or making of a qualityicular standard. the power to veto a standard recommended by the AASB. I, II, III and V completely I, II, and III solo I, II, IV and V only II, III, IV and V only 2. The role of the Australian Securities and Investments Commission is to I. II. III. IV. a. b. c. * d. 3. I, II, III and IV I, III and IV only I, II and IV only II, and III only Regulatory capture is said to go across in which of the observeing situations? a. b. c. d. * 4. Enforce and administer the Corporations Act.In contour line the ordinary about Australian companies, fiscal markets and financial businessals who subscribe and advise in financial instruments. Issue story standards. Improve the performance of the financial system. When the correct entities regard n on-performance by the regulating body When the regulated entities co-opt the regulators into a mutually shared perspective When the regulated entities catch the regulations and the regulatory body All of the higher up Which of these theories could explain a move towards government control of history standards setting in Australia? a. b. . d. * 5. Public engross theory Regulatory capture theory unavowed participation theory All of the above The primeval reasons for developing a conceptual framework is a. * b. c. d. To enable regulators to develop bill standards that are consistent and perspicuous To provide guidance to restrainers in areas where no standard exists To reduce the number of be standards needed To assist auditors 2 6. According to the AASBs Conceptual Framework an summation is a. b. c*. d. 7. A company incurs significant be in relation to a speculative sound projection that intends to turn rocks into gold.In accordance with the AASBs Conceptual Framework th e be of this project are an a. * b. c. d. 8. d. it is not necessary to replicate the prior period comparatives the error may be amended prospectively it may be deferred and recognised in the subsequent period a retrospective bailiwick must be made. When changing an chronicle polity which of the following has to be applied retrospectively? a. * b. c. d. 11. Relevance, reliability, materiality, consistency, verifiability, understandability Understandability, timeliness, relevance, readability, timeliness, reliability Relevance, faithful office, comparability, nderstandability, verifiability, timeliness Uniformity, relevance, reliability, consistency, faithful re notification Where a fundamental error occurs in the designation process a. b. c. d*. 10. expense because at that place is teeny probability that coming(prenominal) economic benefits will come out expense because the recognition criteria for an plus is not satisfy summation because the definition and recognitio n criteria for assets are genial asset because the company will control the future economic benefits. The qualitative characteristics for financial reporting contained in the Conceptual Framework are a. b. c. 9. a dependant upon(p) item depending on another event occurs at some time in the future a future benefits controlled by an entity as the result of a future transaction a future benefit controlled by an entity as the result of past minutes or events an item that has a physical man and can be converted into cash. a conscious change to improve the relevance of information presented a change repayable to the adoption of a naked accounting standard a change due to the adoption of a new interpretation all of the above. A companys workforce went on strike for an indefinite period commencing on 5 August 20X1.The strike was evaluate to cause surd financial conditions for the company. The financial statements for the course of study ended 30 June 20X1 were expected to be compl eted by 7 August 20X1. In accordance with AASB 110 Events afterwards the Reporting Date, the appropriate treatment regarding the strike is a. * b. c. d. manifestation as a note to the financial statements, as it is a non- chastening event disclosure as a note to the financial statements, as it is an coifing event to ad near the financial statements, as it is a non-adjusting event to adjust the financial statements, as it is an adjusting event. 12. Differences among the carrying summates of an entitys terminal assets determined under accounting standards and accrual accounting, and the valuate bases of those net assets determined under the Income revenue sagacity Act, are described as a. * b. c. d. 13. CTT Limited has an asset which apostrophize $300 and against which disparagement of $100 has hoard. The accumulated dispraise for task purposes is $180 and the company appraise rate is 30%. The taxation base of this asset is a. * b. c. d. 14. temporary differences perma nent differences tax losses the on exhalation income tax liability. $120 $220 $80 $20In jurisdictions where the impairment of gracility is not tax allowable, AASB 112 Income Taxes a. * b. c. d. does not permit the industriousness of deferred tax accounting to good will allows the recognition of a deferred tax item in relation to goodwill requires that any deferred tax items in relation to goodwill be recognised directly in loveliness requires that any deferred tax items for goodwill be capitalised in the carrying get along of goodwill. 15. Revaluations under AASB 116 Property, Plant and Equipment apply to a. b. c. d. * all assets on an individual priming individual real assets only individual non-current assets only ssets on a class-by-class basis. 4 Question 2 Short Answers (15 marks) parting a. The ASIC Act details that one of the primary accounting standard functions of the Financial Reporting Council (FRC) is to ensure that accounting standards serve the best interest s of both the private and commonplace vault of heaven. Why is it important that the FRC ensure that the interests of the national sector are met? (3 marks) One of the crucial roles of FRC is to assess the act relevance and effectiveness of accounting and auditing standards to ensure that accounting standards serve the best interests of both the private and overt sector.Relevant accounting standards pinch to required and appropriate accounting information disclosure. account information serves an important public policy purpose namely improving the give ear of information to investors in a countrys capital markets. Accounting information helps investors and other s operateholders contain sound economic decisions, which will enhance the ability of resource allotment and fairness of wealth scattering in the society. With the development of a countrys economy, the social welfare will increase.The public interest means such social welfare. 5 give way b. You urinate recently graduated with your Bachelors degree and have applied for a location with the Australian Accounting Standards Board (AASB) as a technical adviser. At the interview, the chair stresses that they often have difficulties in determining whether the standards they draw up should follow a principles establish or rules base approach. In particular they want to implement standards to overcome fanciful accounting practices.Knowing that you have recently completed studies in accounting theory and standard setting, explain the Chairman what are the three main differences between the principles based approach as opposed to a rules based approach to standard setting? (3 marks) Principles Based ? IASB follows a principles-based approach to standard setting. Constructed in a broad framework that is not focussed on specialised rules under particularized circumstances Allows for professional sagaciousness in relation to substance rather than form Advantages of principles-based standards P rinciples-based standards are simpler. They supply broad guidelines that can be applied to many situations. They improve the representational subjection of financial statements. They allow accountants to use their professional judgement. bear witness suggests that managers are less likely to attempt cyberspace management. Disadvantages of principles-based standards Managers may select treatments that do not smooth the underlying economic substance. The judgement and choice bear on in many of the decisions mean that comparability among financial statements may be reduced Rules-based Currently FASB follows rules-based approach. Constructed in a framework that is focussed on precise rules under specific circumstances. Misuse in collective collapses means that FASB is reconsidering if they should move to principles-based standards. Disadvantages of rules-based standards Rules-based standards can be very complex. Organisations can structure transactions to circumvent hos tile reporting. Standards are likely to be incomplete or even obsolete by the time they are issued. Manipulated compliance with rules makes auditing more difficult. Rules-based standards can be conf apply. severalize c.Explain what a conceptual framework is and what are the benefits of having a Conceptual Framework for the accounting profession? (4 marks) comment of a Conceptual Framework ? A unyielding system of interrelated objectives and fundamentals that is expected to lead to consistent standards ? Also, it is an attempt to provide a organise theory of accounting that prescribes practice. ? establishes concepts/ideas that underlie the preparation and presentation of financial reports ? assists standard setters, preparers, auditors, users and those interested in the work of standard setters How the framework is used for the accounting profession? Explains the concepts/ideas that underlie the preparation and presentation of financial reports for outside users What is the purpose of financial reporting? For whom should financial reports be prepared? What qualitative characteristics should financial information accept? What are the elements of financial reporting? What bill rules should be employed? It provides guidance to the accountants when there is no specific guidance given in the accounting standards.It as well as assists the accountants when they cannot understand the application of certain IFRS due to the complexity involved. 7 Part d. Barton Ltd uses tractors as a part of its operating equipment, and it applies the straight-line disparagement method to depreciate these assets. Barton Ltd has just taken over Deakin Ltd, which uses similar tractors in its trading operations. However, Deakin Ltd has been using diminishing balance method of wear and tear for these tractors. The accountant in Barton Ltd is arguing that for both entities the same depreciation method should be used for tractors. Provide arguments for and against this prop osal. 2 marks) Para 50 of AASB 116 notes that depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.. Arguments against the object ? derogation is measuring the change in pass judgment due to the use of an asset over the period. It is realistic that Deakin Ltd has been using the diminishing value as it was going to use the tractor more in the early historic period of the economic life and hence the choice of the depreciation method is justified. Arguments in Favour ? It is important that there is consistency in the type of the asset and depreciation method applied.Part e. a. Explain the difference between the cost model and revaluation model under step subsequent to initial measurement. (3 marks) Cost Model AASB 116 requires that measurement subsequent to initial measurement of assets could be carried at cost less any accumulated depreciation impairment losses. Revaluation model As an alternative to the cost model AASB 116 all ows the revaluation model to be used for classes of assets. Revaluation is an adjustment of PPEs carrying amount so that it reflects its current fair value. Measurement basis is fair value (FV).Frequency of revaluations is not specified, but must be performed with sufficient regularity such that the carrying amount of assets is not materially different from their FV. Revaluation performed on a class basis. Accounting performed on an asset-by-asset basis. 8 Question 3 Practical (10 Marks) Bravo Ltd began operations on 1 July 2011 and has provided the following information 1. 2. 3. Pre-tax accounting advantage for the financial form ended 30 June 2012 is $cl 000. The enacted tax rate is 30%. Differences between the 30 June 2012 income statement and tax return are listed below (a) b) (c) (d) (e) 4. Annual leave expense accrued for financial reporting purposes amounts to $15 000. The employees were not allowed to take annual leave in the first year of operation. Depreciation of prope rty, plant and equipment for accounting purposes amounts to $120 000. Depreciation of these assets amounts to $80 000 for the tax return. Entertainment expenses of $6 cholecalciferol were included in computing pre-tax accounting profit. Tax free government grants of $5 000 were recognised as income. As a small business, Bravo Ltd chose for tax income purposes cash accounting for their sales revenue.Accounts receivable regarding sales show a balance of $20 000 at year-end. There was no need to recognise any allowance for doubtful debts. Taxable profit is expected for the next few years. Required (a) (b) (c) Calculate ratable profit for the financial year ended 30 June 2012. (4 marks) Prepare the journal entry to record income tax expense, deferred tax and income tax payable for the financial year ended 30 June 2012. (4 marks) Draft the income statement first base with Profit before income tax. (2 marks) (a) Pre-tax accounting profit $150 000 Permanent differences Entertainment ex penseTax-exempt revenue familiarized accounting profit 6 euchre (5 000) 151 500 Originating temporary differences Annual Leave Provision Accounting expense Tax deductible Excess depreciation expense Accounting expense Tax deductible Excess Revenue Taxable profit (b) $ 15 000 (0 ) 15 000 DTA 4 500 120 000 (80 000) 40 000 DTA 12 000 (20 000) DTL 6,000 $186 500 Income tax payable 55 950 Income Tax Expense 45 450 Deferred Tax asset 16 500 Income Tax Payable 55 950 9 Deferred tax liability 6 000 DTA = 4 500 + 12 000 (c) Profit before income tax Income tax expense Profit for the period $150 000 45 450 $104 550 10