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Task Thisassessment task consists of five (5) questions. A total of 80 marks are allocated to the questions below, which will then be converted to a mark out of 15%. All workings, when appropriate,...

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Thisassessment task consists of five (5) questions. A total of 80 marks are allocated to the questions below, which will then be converted to a mark out of 15%.

All workings, when appropriate, must be shown to substantiate your answers.

Question 1 [15 marks]

Financial statement disclosures

One of the projects that the International Accounting Standards Board (IASB) is currently undertaking is the Disclosure Initiative project, with the aim of improving communication in financial reports.

The IASB has identified three main concerns about disclosures in financial statements, namely: there is not enough relevant information in the notes, there is irrelevant information in the notes, and there is ineffective communication of the information provided.

The IASB released a discussion paper in March 2017,DP 2017/1 ‘Disclosure Initiative – Principles of Disclosure’and is currently seeking feedback on the disclosure issues identified and on the Board’s preliminary views on how to address them.

You are an investor who, for years, has struggled to work through and understand all of the note disclosures when analysing and comparing the financial reports of companies that you are considering investing in.

You are currently considering investing in either CBA or NAB. After reviewing and comparing the note disclosures provided in their 2017 annual reports, you plan to make a submission in response to the IASB’s discussion paper. In your submission, you plan to provide feedback in response to ‘Section 2 – Principles of Effective Communication’ of the discussion paper, given the difficulties that you have faced due to ineffective communication in financial reports.

In section 2 of the Discussion Paper, the IASB has proposed that a set of principles of effective communication be developed. The seven principles identified in the Discussion Paper are that information in the financial reports should be:

  • Entity specific;
  • Clear and simple;
  • Organised to highlight important matters;
  • Linked to related information;
  • Free from unnecessary duplication;
  • Comparable; and
  • In an appropriate format.


Download and the Discussion Paper DP 2017/1 ‘Disclosure Initiative – Principles of Disclosure’ (copy available in the 'Resources' folder on Interact).

Download the 2017 annual reports for CBA and NAB. Review and compare the notes that form part of each entity’s financial reports (copy available in the 'Resources' folder on Interact).

Prepare a letter to the IASB. In your letter:

  • Discuss which of the seven principles of effective communication you feel are lacking the most in the note disclosures contained in the 2017 financial reports of CBA and NAB (and hence which principles you think that the IASB needs to put the most work into, in order to improve communication in financial reports).
  • Suggest two specific changes that you think will make the biggest improvement to the effectiveness of note disclosures for investors like yourself, given the issues discussed above.

(Word limit: 1200 words)

Marking Guide - Question 1

Max. marks awarded

Discussion re CBA and NAB’s note disclosures and the effective communication principles that are currently lacking


Discussion of suggested changes to improve the effectiveness of note disclosures


Presentation and writing style


Question 2 [16 marks]

Accounting for share issues

On 1 February 2017, Beach Supplies Ltd was registered and issued a prospectus inviting applications for 2,000,000 shares, at an issue price of $3.50, payable as follows:

$1.00 on application
$1.50 on allotment (payment due within 1 month of allotment)
$0.60 on first call
$0.40 on final call

The issue is underwritten at a commission of $30,000.

By 28 February 2017, applications had been received for 1,900,000 shares. On 3 March, shares are allotted, and the underwriter forwarded the application and allotment money due on the 100,000 shares less their commission. All remaining allotment money is received by 3 April. Legal costs re company formation are $5,000 and are paid on 5 April. Share issue costs of $3,000 are also paid on the same date.

The first call is made on 10 April 2017, with money due by 10 May 2017. The final call is made on 15 May 2017, with money due by 15 June 2017. All money owing in relation to the two calls is received by the due dates except for the holders of 40,000 shares who did not pay either call, and the holder of another 10,000 shares who did not pay the second call. On 20 June 2017, as provided in the company’s constitution, the directors forfeited these 50,000 shares.

On 25 June 2017, the forfeited shares are reissued as fully paid for a consideration of $3.10 per share. Costs of forfeiture and reissue amounted to $10,000, and are paid. The constitution allows for the refund of any balance in the forfeited shares account after reissue to former shareholders, so refunds were made on 30 June 2017.


Prepare the journal entries to record the transactions of Beach Supplies Ltd up to and including that which took place on 30 June 2017. Show all relevant dates, narrations and workings.

Marking Guide - Question 2

Max. marks awarded

Journal entries




Narrations and workings


Question 3 [18 marks]

Accounting for income tax

The accounting profit before tax for the year ended 30 June 2017 for Aldee Ltd amounted to $235,000. It included the following income and expense items:


Royalties (exempt income)

15,000 CR

Interest revenue

16,000 CR

Annual leave expense

9,000 DR

Doubtful debts expense

3,800 DR

Depreciation - plant (15% per year, straight-line)

47,250 DR

Depreciation - motor vehicles (20% per year, straight-line)

20,000 DR

Insurance expense

14,000 DR

Rent expense

42,000 DR

Warranty expense

5,600 DR

Entertainment expense (not tax deductible)

4,000 DR

The draft statement of financial position at 30 June 2017 contained the following assets and liabilities:







Trade receivables



LessAllowance for doubtful debts






Interest receivable



Prepaid insurance



Plant – cost



LessAccumulated depreciation



Motor vehicles - cost



LessAccumulated depreciation



Deferred tax asset




Trade payables



Provision for annual leave



Provision for warranties



Bank loan



Deferred tax liability



Additional information:

  • The tax depreciation rate for plant is 20% per year, and motor vehicles is 15% per year, using the straight-line method.
  • Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued.
  • Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.
  • Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
  • Interest revenue is only taxable when amounts are actually received, and not as amounts are accrued.
  • The deferred tax asset (DTA) balance at 30 June XXXXXXXXXXcomprised:

- DTA’s relating to temporary differences: $11,190
- DTA’s relating to carried forward tax losses: $6,000

  • Taxation legislation allows tax losses to be offset against future taxable profit.
  • The tax rate is 30%.


i) Determine the balance of any current tax liability and deferred tax assets and liabilities as at 30 June 2017, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.

ii) Prepare the journal entries to record the current tax liability and movements in deferred tax assets and deferred tax liabilities.

Marking Guide – Question 3

Max. marks awarded

i) Determination of taxable income and current tax liability


i) Determination of deferred tax assets and liabilities in deferred tax worksheet


ii) Journal entries


Question 4 [16 marks]

Revaluation of property, plant and equipment

Sunshine Ltd reported the following information for plant and equipment in its statement of financial position at 1 July 2016:


Plant and equipment - at cost


Less: accumulated depreciation



The records of Sunshine Ltd as at 1 July 2016 showed that the plant and equipment consisted of two items:

Plant X

Plant Y






Carrying amount



Both items of plant are depreciated on a straight-line basis over 10 years. Plant X has an estimated residual value of $50,000, and Plant Y has an estimated residual value of nil.

On 1 July 2017, the directors of Sunshine Ltd decide to change from the cost model to the revaluation model. The following information applies:

1 July 2017

1 July 2018

Plant X

Plant Y

Plant X

Plant Y

Fair value





Remaining useful life

6 years

5 years

5 years

4 years

Estimated residual value





Assume a tax rate of 30%.


Prepare all relevant journal entries for Sunshine Ltd’s plant and equipment for the period 1 July 2016 to 30 June 2019 (including entries for depreciation and all necessary revaluation entries). Show narrations and all relevant workings.

Marking Guide - Question 4

Max. marks awarded

Journal entries




Question 5 [15 marks]

Impairment of assets

Gadgets Ltd has a division that represents a separate cash generating unit. At 30 June 2016, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:





Plant and equipment


Less: accumulated depreciation






Accounts receivable






Carrying amount of cash generating unit


The receivables were regarded as collectable, and the inventory’s fair value less costs to sell was equal to its carrying amount. The patent has a fair value less costs to sell of $180,000, and the land has a fair value less costs to sell of $780,000.

The directors of Gadgets estimate that, at 30 June 2016, the fair value less costs to sell of the division amounts to $1,750,000, while the value in use of the division is $1,840,000.

As a result, management increased the depreciation of the plant and equipment from $40,000 p.a. to $45,000 for the year ended 30 June 2017.

By 30 June 2017, the recoverable amount of the cash generating unit was calculated to be $20,000 greater than the carrying amount of the assets of the unit.


Determine how Gadgets Ltd should account for the results of the impairment test at 30 June 2016 and 30 June 2017, and prepare any necessary journal entries. Show all workings and provide references to the relevant accounting standard to support your answer

Marking Guide - Question 5

Max. marks awarded

Journal entries, calculations and workings for 2016


Journal entries, calculations and workings for 2017


Answered Same Day May 04, 2020 ACC514 Charles Sturt University


Abr Writing answered on May 07 2020
108 Votes
Financial Accounting
Solution 1
London, United Kingdom
Discussion on Disclosure Initiative – Principles of Disclosure
In this letter, I am highlighting Principles of Effective Communication, section – 2, which was posted in the year March, 2017. It was being released as DP 2017/1 as “Disclosure Initiative – Principles of Disclosure”. IASB is seeking feedback as I got to know regarding this disclosure issue. The inclination of this letter is towards this concern IASB has shown regarding Discussion Paper’s section 2 which is explaining the effective communication principles in financial reports. I have chosen ANZ Bank and Westpac as my two Australian financial institutions.
In Case of ANZ bank, the disclosure initiative regarding effective communication has been followed by the bank in a steadier manner (Cho & Patten, 2007). General purpose financial statements are prepared in the bank according to the guidelines of AASs – Australian Accounting Standards and the Banking Act, 1959. IFRS is followed by IASB. Historical cost system is followed by it for finding available financial instrument.
Talking about Westpac, the operation period of the business is been more than two hundred years. I have observed, after going through the annual reports of Westpac that the forward looking statements of the company aren’t based on the historical facts. According to the principle of effective communication, financial report must be linked with concerned historical information. The best scenario would be if the report can be compared among the report’s reporting period without ignoring the significant information of increment and fall.
After observing both the financial reports it can be concluded that more entity specific is certainly the ANZ Bank because every financial matter is explained thoroughly. It is observed lacking in both the financial institution in terms of linking of relevant information as their reports contain page number content for the purpose of financial notes referencing. The information provided is simplified and clear in ANZ report but certain aspects like comparison and highlighting significant information is lacking in comparison to Westpac.
The section 2.16 which is the feedback from financial statements users for formatting is used for improving the communicated information. The explanation given in section 2.17 focus on the need of tabular format for the specific type of disclosure and also on the need of the information in common tabular format (Aerts, et. al., 2008). While preparing the financial statements notes the same was revealed in principles of disclosure, section 2.22.
As far as I am concerned, I very much believe that proper guidance on rules regarding the formatting use in the respected financial documents or statements should be followed and developed by each and every financial and non financial institution in an efficient and effective manner. The financial statements must be prepared according to the accounting standards and must be free from any biased approach. Proper disclosure policy must be followed in order to disclose all the relevant financial and accounting information to the users or parties who have some interest in the organization (Lopes & Rodrigues, 2007). Users can be internal users as well as external users. Both the type of users is significant for the success of the business. Internal users and namely, employees, management, shareholders etc. whereas external users are potential investors, banks and government bodies. Both these users (internal and external) are important for the running of financial institution without any obstacle or resistance.
All the relevant information is contained in the financial report of the company and it is very important for the users of financial statements like...

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