Australian Accounting Standards Board - Assignment Example

Name: Lecturer: Course name: Course code: Date Part A Question One Australian Accounting Standards Board (AASB118) defines to which the company’s recognize revenue arising from its transactions. Paragraph 18 of AASB118 accentuates that, the revenue is only recognized when there is an apparent monetary benefits to the firm in relation to transactions. AASB 118 paragraph 4 describes contractual rendering of services based on agreed terms. This defines initial payment of 25% non refundable deposit for Fly Away that marks the beginning of the performance contract (Haswell, Stephen). This amount received is recognized as revenue and it will be recorded in the initial transaction as progress payment since it will be redeemed in current transactions. However on redemption of the variable cost on 30th July the Fly Away limited will recognize revenue using the percentage of completion method. The Fly Away Limited Provision of equipped airplane and pilots has an apparent consideration of preference in company’s services thus facilitating higher revenue returns related to more transactions due to satisfactory company’s services to the customers. According to the paragraph 24 (c) of AASB 118, Fly Away provision of catering including expensive foods and alcohol items over the tour trip has high revenue recognition to the company is form of sales at the completion of transactions based on the agreed considerations between the parties. The premeditated recovery strategy of cost plus10% margin on the additional services rendered by Fly Away is accentuated according to paragraph 24 of the AASB118 which signifies assessment of cost incurred for total services. The 10% margin implies apparent revenue to be recognized on additional revenue above the agreed contracting charge at the time of completion of the transaction (Kraal, Diane). Fly Away arrangement of accommodation sites articulates the flow of economic benefit allied to the transaction. Paragraph 23 and 24 of the AASB 118 describes the incentives through which revenue from such service will be recognized, I.e. At the time of full payment is made by the contracting party based on the agreed proportions. Fly Away end of financial year 30th June and the difference in the time of completion of the contracts 30th July heightens the disclosure of the revenue recognized and outstanding to be received on the completion of the contract. AASB 35 (a) describes the policies of recognition of revenue basing on stage and completion of rendering services. The revenue outstanding and expenditure associated to the revenue to be realized in completion is recognized and recorded as contingent assets while associated expenses will be recorded as contingent liabilities. Question Two AASB 118 paragraph 3 describes the Fly Away s’ accounting of the deposit at the end of its financial period. Fly Away 25% deposit will be recognized as revenue in 30th June even though the transactions is not fully consummated since the company budget to buy non perishable supplies for the trip before the end of 30th June. Paragraph 26 of the standards delineates that for the revenue received as deposits will be only recognized at the time expenses are incurred. Thus the expenses incurred for supplies validate the Fly Away s’ recognition of deposits revenue. Part B Determination of carrying amount Goods purchased= 10,000 remote controlled fire engines Cost = 1,000,000 US $ Client currency- A$ Payment period 60 days after shipment Date of shipment 26th June 2013 Expected date of making payment 15th August 2013 Exchange rates at payment date. 1 A$ = 0.75 US$ Total carrying amount= Cost of the fire engine + Freight charges Cost of fire engines = us$ 1,000,000 1 A$ = 0.75 US$ ? 1,000,000 US$ = 1,000,000US$ x 1A$/0.75US$ = A$ 1,333,333 Freight Charges = A$ 75,000 Total carrying cost =A$ 1,408,333 Part C 1) Determination whether Saint Therese Nursing Homes is a reporting entity Statement of accounting concepts SAC1 and Australian accounting standards describes the requirements of an entity accentuating the disclosures measures and principles in reporting their financial performances to their users (Kraal, Diane). SAC1 explains the benchmark requirements and concepts that an entity must disclose to facilitate entities financial reporting purposes. Paragraph 26 highlights the factors that describe the requirements of private sector entities to be described as reporting entity. Saint Therese Nursing Homes Pty Ltd is a large proprietary entity privately own by Marrie Martin, However this cannot quantify the entity to be regarded as non reporting entity. The size and economic connotation of Nursing Homes Pty Ltd to their financiers, employees and the public attract for public interest that dictates the company as reporting entity although the entity is proprietary owned (Kraal, Diane). The company’s source of finances such as Big Banking groups in raising its capital enhances general purpose financial reports thus becoming a reporting entity since the financiers will need to evaluate the viability in repaying the entities obligations. Nursing Homes Pty Ltd improvement of its services to the residents enlightens its dominance in the public that will enhance broad financial users thus making the entity a reporting entity (Haswell, Stephen). Paragraph 22 of SAC provides economic criterion by which the entity can be regarded as reporting entity. The company’s economic situation that enables to meet $1,500,000 that will recover from government signifies that the entity has well financed thus this creates more base of financial dependent users. Moreover, the claim of the company for reimbursement of the amount incurred for resident signifies that the company is a reporting entity since the financial reports would be disclosed in making the claim. However, the provision described in the SAC and Australian Accounting Standards facilitate the criteria of considering the Nursing Homes Pty Ltd as reporting entity. 2) Preparation of financial statements. 1) Comprehensive income statement Nursing Homes Pty Ltd Statement of comprehensive Income AS at year end 30 June 2013 Revenue Government subsidies/grants income 21,170,303 Resident fees and charges income 12,125,298 33,295,601 Add Other Revenue/ income Interest Received 370,364 Gain on disposal of non-current asset 295,404 665,768 Total Income 33,961,369 Less Operating expenses selling and administration expenses 17,955,005 Employee benefit expenses 3,059,050 Other Expenses 1,270,672 Accountancy and audit 134,036 Interest paid 41,092 22,459,855 Earnings for the year 11,501,514 Workings Wk1 selling and administration expenses Motor expenses 155,416 Insurance 1,044,590 Advertising 3,101 Printing and postage 174,857 Repairs, maintenance and replacement 935,662 Maintenance services 204,328 Cleaning 347,459 Telephone 82,889 Training 101,293 Couriers and freight 1,924 Bank charges 40,806 Salaries and wages 14,862,680 17,955,005 Wk2 Employee benefit expenses Food 1,091,575 Travel and entertainment 38 Uniforms 5,047 Superannuation 1,613,682 Medical expenses 348,708 3,059,050 Wk3 Other Expenses Permits and fees 42,102 Light and power 291,334 Gas and wood 96,330 General expenses 71,166 Depreciation 611,757 Water rates 157,983 1,270,672 WK4 Nursing Homes Pty Ltd Statement of Financial Position AS at year end 30 June 2013 Fixed Assets Cost Acc/ depreciation Net book value Plant and Equipment 10,097,850 4,861,623 5,236,227 Motor Vehicles 988,257 544,984 443,273 Land and buildings 174,663,773 945,372 173,718,401 Total Fixed Assets 179,397,901 Current Assets Prepayments 116,525 Fees received in advance 108,848 Cash on hand 3,660 Trade debtors 7,750 Cash equivalents 6,864,598 Total Current Assets 7,101,381 Total Assets 186,499,282 Current Liabilities Accounts payable 1,138,114 PAYG clearing account 2,952 Wages clearing account 368,316 Superannuation liabilities 39,986 Christmas Club clearing account 146,899 Miscellaneous wages deductions clearing 2,874 Other short-term liabilities 90,678 Annual leave provision 1,057,925 Total Current Liabilities 2,847,744 Non Current Liabilities and Equity Resident loans (long term) 107,085,883 Long-term loans 37,430,139 Long-service leave provision 878,508 145,394,530 Equity Opening share capital 2,997,492 Revaluation 15,718,728 Retain earnings b/F 8,389,206 Retain earnings 11,501,514 38,606,940 Total Liabilities and Equity 186,499,282 Statement of changes in equity Nursing Homes Pty Ltd Statement of changes In Equity As at year end 30 June 2013 Share Capital Retained Earnings Revaluation Reserve Totals Balance at the beginning 2,997,492 8,389,206 11,150,464 22,537,162 Owner transactions 0 11,501,514 4,568,264 16,069,778 Contributions 0 0 0 0 Balance as at 30 June 2013 2,997,492 19,890,720 15,718,728 38,606,940 Relationship between Income statement, Balance sheet and Statement of changes in equity Income statement reports describe the company’s financial performance such as revenues less incurred expenses throughout the accounting period. The company’s profits reflected in the income statement facilitate the contribution of financing income in the statement of financial position and it increases the owner equity in statement of changes in equity The balance sheet statement describes the company’s ability pay its financial obligation on time, its financial flexibility in acquiring capital and its ability in distributing cash in the form of dividends to the company's shareholders. Statement of financial position accentuates on the company’s state of finances in meeting obligation in relation to the capital and owners equity. Statement of Changes in Equity is used in reconciliation the various components and transaction of the business owners at the beginning and the end of balance sheet date (Schipper, Katherine). This statement relates with statement comprehensive income since the earnings generated by the business has reflected in income statement increases the owner’s equity and the financing component such as shares, revaluations, and previous earnings in statement of financial position describes the current equity of the company. Characteristics of items in that comprise statement of comprehensive income and not statement of changes in equity Comprehensive income statement comprises of the component such as revenue, expenses, cost of sales, discounts and profit or losses while statement of changes in equity comprises if ordinary shares, earnings and owners transactions (Epstein, Barry J). The component of comprehensive income statement describes the company’s operation based on arbitrated cut-offs. The business revenue and expenses differs from one financial year to another based on the management efficiency and their efficiency. However this is not the matter in the components in statement of changes in equity since they does not fluctuate based on financial years i.e. profits fluctuates while owner’s equity increases based on profit and revaluations. Work Cited Epstein, Barry J., Ralph Nach, and Steven M. Bragg Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles. Wiley. com, 2009. Schipper, Katherine. "Principles-based accounting standards" Accounting Horizons 17.1 (2003): 61-72. L Street, Donna, Sidney J. Gray, and Stephanie M. Bryant "Acceptance and observance of international accounting standards: an empirical study of companies claiming to comply with IASs." The International Journal of Accounting 34.1 (1999): 11-48. BOYMAL, DAVID. "The Work Program and Priorities of the AASB." Australian Accounting Review 17.42 (2007): 3-7. Kraal, Diane. "Disclosure and financial reporting." Contemporary Business Issues, Module 4 (2011). Haswell, Stephen, and Ian Langfield‐Smith. "Fifty‐Seven Serious Defects in ‘Australian’IFRS." Australian Accounting Review 18.1 (2008): 46-62. Read More