Balance Sheet and Accounting Standards

dissolving agent SHEET STUDENTS moniker OTHER constructS STUDENT trope TUTORIAL DAY & while TUTORS FULL NAME Test 1 Version 2 Session 2, 2012 hunt Code ACCG 224 Course Name INTERMEDIATE FINANCIAL explanation Time all in allowed 55 minutes addition 5 minutes reading measure append no of questions Three read/write heads instruction manual 1. You essential answer ALL questions in the test leaflet. No sepa count booklet will be provided to answer the questions. . This is a closed-book test. You atomic number 18 non allowed to refer to each text material for the test. 3. Show all workings. Handwriting must be legible. 4. Non-programmable and non-text convalescence calculators may be used, but dictionaries ar not to be used. Question No. Marks 1 /15 2 /15 3 /10 Total /40 Question 1 octuple Choice (15 marks) (Please circle the correct answer) 1. The briny functions of the Financial reportage Council include I. II. one-third. IV. V. a. b. * c. d. overseeing the performance for the setting of account affirmation measurings of the AASB. determining the AASBs capacious strategic direction. onitoring and reviewing the level of patronage for the AASB. directing the AASB in intercourse to the discipline or making of a specific stock(a). the power to veto a precedent recommended by the AASB. I, II, trey and V single I, II, and III b argonly I, II, IV and V precisely 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 regulative capture is verbalize to occur in which of the following situations? a. b. c. d. * 4. enforce and administer the Corporations Act.Inform the public about Australian companies, fiscal markets and pecuniary professingals who deal and displace in pecuniary instruments. Issue account statement steps. Improve the performance of the financial governance. W hen the modulate entities ensure non-performance by the regulating corpse When the regulated entities co-opt the regulators into a mutually sh atomic number 18d perspective When the regulated entities pull wires the regulations and the regulatory body All of the in a higher place Which of these theories could explain a move towards disposal aver of news report standards setting in Australia? a. b. . d. * 5. Public amuse theory Regulatory capture theory Private involution theory All of the above The primeval reasons for developing a conceptual mannequin is a. * b. c. d. To enable regulators to develop report standards that are consistent and logical To provide focal point to accountants in areas where no standard exists To come down the number of account statement system standards needed To tending auditors 2 6. According to the AASBs conceptual mannikin an addition is a. b. c*. d. 7. A divisiony incurs significant cost in relation back to a speculative project that intends to acidulate rocks into gold.In accordance with the AASBs Conceptual framework the costs of this project are an a. * b. c. d. 8. d. it is not essential to restate the prior period comparatives the mistake may be amended prospectively it may be deferred and recognised in the ac clubing period a retrospective subject must be made. When changing an accountancy policy which of the following has to be employ retrospectively? a. * b. c. d. 11. Relevance, reliability, materiality, consistency, verifiability, lucreherstandability Understandability, timeliness, relevance, readability, timeliness, reliability Relevance, unaired representation, comparability, nderstandability, verifiability, timeliness Uniformity, relevance, reliability, consistency, faithful representation Where a fundamental error occurs in the realisation process a. b. c. d*. 10. disbursal be brace on that point is little probability that futurity frugalal benefits will featureuate depreciate because the scholarship criteria for an asset is not cheerful asset because the definition and recognition criteria for assets are satisfied asset because the compe actually will control the future sparing benefits. The soft characteristics for financial inform contained in the Conceptual Framework are a. b. c. 9. a contingent relic depending on another instance occurs at some time in the future a future benefits controlled by an entity as the result of a future performance a future benefit controlled by an entity as the result of past proceedings or events an item that has a physiological existence and can be converted into cash. a voluntary mixed bag to mitigate the relevance of teaching presented a shift due to the adoption of a modern accounting standard a change due to the adoption of a tonic interpretation all of the above. A companys workforce went on accept for an indefinite period commencing on 5 magisterial 20X1.The peach was anticipate to cause severe financial conditions for the company. The financial statements for the stratum ended 30 June 20X1 were expected to be absolute by 7 August 20X1. In accordance with AASB 110 Events after(prenominal) the Reporting Date, the appropriate treatment regarding the strike is a. * b. c. d. disclosure as a beak to the financial statements, as it is a non- sort outing event disclosure as a bank line to the financial statements, as it is an adjusting event to adjust the financial statements, as it is a non-adjusting event to adjust the financial statements, as it is an adjusting event. 12. Differences in the midst of the carrying amounts of an entitys net assets determined chthonian accounting standards and accrual accounting, and the pass judgment bases of those net assets determined under the Income Tax opinion Act, are described as a. * b. c. d. 13. CTT contain has an asset which cost $300 and against which wear and tear of $100 has accumulated. The accumulated derogation for a ppraise purposes is $180 and the company impose income rate is 30%. The assess income base of this asset is a. * b. c. d. 14. temporary differences permanent differences tax losings the actual income tax liability. $ great hundred $220 $80 $20In jurisdictions where the prejudice of goodwill is not tax deductible, AASB 112 Income Taxes a. * b. c. d. does not permit the exertion of deferred tax accounting to goodwill 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 equity requires that any deferred tax items for goodwill be superiorised in the carrying amount of goodwill. 15. Revaluations under AASB 116 Property, Plant and Equipment hold back to a. b. c. d. * all assets on an someone background individual current assets only individual non-current assets only ssets on a var.-by-class basis. 4 Question 2 Short Answers (15 marks) character a. The ASIC Act details that one of the primary quill accounting standard functions of the Financial Reporting Council (FRC) is to ensure that accounting standards serve the take up interests of both the private and public arena. why is it all significant(p) that the FRC ensure that the interests of the public sector are met? (3 marks) One of the crucial roles of FRC is to assess the continued relevance and effectiveness of accounting and auditing standards to ensure that accounting standards serve the silk hat interests of both the private and public sector.Relevant accounting standards twist to required and appropriate accounting information disclosure. accountancy information serves an important public policy purpose namely improving the flow of information to investors in a countrys capital markets. Accounting information helps investors and other stakeholders light up sound economic decisions, which will enkindle the efficiency of resource allocation and lawfulness of wealth distribution in th e society. With the training of a countrys economy, the companionable welfare will increase.The public interest authority such(prenominal) social welfare. 5 bug out b. You wee recently graduated with your Bachelors degree and have applied for a position with the Australian Accounting Standards Board (AASB) as a technical adviser. At the interview, the Chairman stresses that they frequently have difficulties in determining whether the standards they sequestrate up should follow a principles establish or rules base hail. In event they want to implement standards to overcome original accounting practices.Knowing that you have recently completed studies in accounting theory and standard setting, explain the Chairman what are the common chord main differences between the principles based approach as opposed to a rules based approach to standard setting? (3 marks) Principles found ? IASB follows a principles-based approach to standard setting. Constructed in a broad framew ork that is not focused on specific rules under specific circumstances Allows for professional head in relation to substance sooner than form Advantages of principles-based standards Principles-based standards are simpler. They supply broad guidelines that can be applied to many an(prenominal) situations. They improve the representational faithfulness of financial statements. They allow accountants to use their professional judgement. prove suggests that managers are slight likely to enterprise earnings management. Disadvantages of principles-based standards Managers may select treatments that do not reflect the underlying economic substance. The judgement and choice involved in many of the decisions mean that comparability among financial statements may be reduced Rules-based soon FASB follows rules-based approach. Constructed in a framework that is focussed on specific rules under specific circumstances. Misuse in corporate 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 baffle unfavourable reporting. Standards are likely to be incomplete or even old by the time they are issued. Manipulated compliancy with rules makes auditing more(prenominal) difficult. Rules-based standards can be confusing. Part c. explain what a conceptual framework is and what are the benefits of having a Conceptual Framework for the accounting profession? (4 marks) Definition of a Conceptual Framework ? A coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standards ? Also, it is an attempt to provide a structured theory of accounting that prescribes practice. ? establishes concepts/ideas that be the preparation and presentation of financial reports ? assists standard setters, preparers, auditors, users and those interested in the work of standar d setters How the framework is used for the accounting profession? Explains the concepts/ideas that underlie the preparation and presentation of financial reports for external users What is the purpose of financial reporting? For whom should financial reports be prepared? What qualitative characteristics should financial information possess? What are the elements of financial reporting? What amount rules should be employed? It provides guidance to the accountants when there is no specific guidance given in the accounting standards.It also 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 underrate these assets. Barton Ltd has just taken over Deakin Ltd, which uses uniform tractors in its trading operations. However, Deakin Ltd has been using diminishing poise method of disparageme nt for these tractors. The accountant in Barton Ltd is arguing that for both entities the same depreciation method should be used for tractors. hand over arguments for and against this proposal. 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 Proposal ? depreciation is measuring the change in comfort due to the use of an asset over the period. It is possible that Deakin Ltd has been using the diminishing note value as it was going to use the tractor more in the early courses 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 casing of the asset and depreciation method applied.Part e. a. Explain the difference between the cost set and revaluation sham under standard subsequent to initial measurement. (3 marks) Cost ensample 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 allows the revaluation model to be used for classes of assets. Revaluation is an adaption of PPEs carrying amount so that it reflects its current honest 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 unlike 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 profit for the financial grade ended 30 June 2012 is $150 000. 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 egress expense accrued for financial reporting purposes amounts to $15 000. The employees were not allowed to take annual leave in the first category of operation. depreciation of property, plant and equipment for accounting purposes amounts to $120 000. dispraise of these assets amounts to $80 000 for the tax return. Entertainment expenses of $6 euchre were included in calculation pre-tax accounting profit. Tax free government grants of $5 000 were recognised as income. As a small business, Bravo Ltd chose for taxation purposes cash accounting for their sales revenue.Accounts due regarding sales show a proportion of $20 000 at year-end. There was no need to recognise any adaptation for doubtful debts. Taxable profit is expected for the next few years. Required (a) (b) (c) visualise taxable 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 beginning with gain before income tax. (2 marks) (a) Pre-tax accounting profit $150 000 long-lived differences Entertainment expenseTax-exempt revenue Adjusted accounting profit 6 500 (5 000) 151 500 Originating temporary differences Annual Leave provide Accounting expense Tax deductible overindulgence 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 cost 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