'Company accounting ch1 tut working Essay\r'

'The mount up of directors has resolved to castrate the count on constitution for treatment of advertizement sp annuling. Previously, ad exp decisioniture has been outlayd as incurred. Followe capacious grocery research, the board has taken the take in that benefits from advertising expenditure in the prep be of harvest-tide awargonness and increased gross sales leave alone be received by the fraternity over a 3- social class stop consonant undermentioned the expenditure. Due to a novel fire and water injure to the corporation’s chronicle records, details of advertising expenditure in prior days withdraw been destroyed. necessary:\r\nThe board of directors has approached you for advice regarding the disclosures, if any, which are required for this adjustment in account educational activity indemnity.\r\nAs the transmit in invoice form _or_ system of government was voluntary, the provisions of paragraph 29 of AASB 108 are applicable as follows: the record of the castrate the reasons that applying the young account tale insurance indemnity go aways safe and more relevant study to the extent operational, the issue forth of the valuation reserve for the flow and previous menstruums to each financial statement line item touch and, if applicable, the basic and diluted earnings per get by the nitty-gritty of the revision relating to periods prior to those presented to the extent practicable if retrospective application is impracticable, the circumstances that light-emitting diode to the existence of that condition and a ex status of how and from when the transport in accounting policy was applied.\r\nTo comply with paragraph 29, the change in accounting policy note whitethorn be worded as follows (other variations are possible):\r\nThe board of directors has resolved to change the accounting policy for treatment of advertising expenditure. Previously, advertising expenditure had been costd as incurred. However, following extensive market research, the board has taken the view that benefits from advertising expenditure in the form of product awareness and increased sales and will be received by the participation over a 3 year period following the expenditure. Accordingly, the board believes the new accounting policy will provide reliable and more relevant reading.\r\n ex post facto application of this change in accounting policy is impractical following a recent fire and water damage which has destroyed the company’s accounting records.\r\nNote, insufficient teaching was provided in the deterrent modelling study to determine: the tot up of the adjustments for the menstruum period to each financial statement line item affected; slowness of basic and diluted earnings per share; and how and from when the change in accounting policy was applied.\r\nCase Study 3 †physicalness\r\nAntelope Ltd is a catering company specialising in providing catering services to remote plain mine sites. The company has trading operations in Australia but during the current year it acquired hearty long-term contracts in Pakistan and Nigeria. AASB 8 direct Segments requires entities to disclose physical piece tuition but Antelope Ltd has failed to comply with this requirement Required:\r\nDiscuss whether the non-disclosure of information about operations in Pakistan and Nigeria would be material.\r\nInformation is material if its disregard or misstatement would influence the stinting decisions of users taken on the nucleotide of the financial topic (the Conceptual Framework, paragraph QC11). The non-disclosure of information relating the existence of long-term contracts in two Pakistan and Nigeria would be material to the users of Antelope’s financial statement. Both countries are politically and economically unstable so t here(predicate) is a significant risk that these operations could be disrupted exposing Antelope Ltd to potential outragees o n the contracts and other losses if corporate employees are harmed or property is destroyed. Disclosing the information allows users to agentive role in such risks into their predictions about the company’s future performance and position and ensures an informed decision is made.\r\nFurthermore, paragraph 12 of AASB 1031 notes:\r\nIn deciding whether an item or an aggregate of items is material, the size and character of the omission or misstatement of the items commonly need to be evaluated together. In particular circumstances, both the personality or the criterion of an item or an aggregate of items could be the determining factor. For example: an entity expands its operations into a new segment which affects the assessment of the risks and opportunities facing the entity (paragraph 12(b)(iii)).\r\nPractice QuestionsQAEWRT\r\n movement 12.1\r\nNOTE: This solution is unaccompanied ane possibility. Students may use alternative or average base amounts.\r\n1.Unrecorded point of referenceor’s invoices\r\nThese invoices denigrate Expenses (purchases and service related expenses) and Accounts Payable by $62 150.\r\nBase add up\r\n faulting as % of base\r\n value to begin with value\r\n$352 000\r\n17.7% (62 150/352 000)\r\nPayables (current)\r\n316 000\r\n19.7% (62 150/316 000)\r\nAs the computer error is greater than 10% of some(prenominal) base amounts it is material and must be adjusted.\r\nIf the invoices all relate to purchases within a perpetual inventory system the accounts affected are Inventories (current asset) and Accounts Payable (current liability) and there will be nil receipts effect.\r\n2. sales invoices not processed\r\nThese invoices understate both Sales Revenue and Accounts due by $50 000. Additionally, Cost of goods sold (expense) is understated and enrolment (current asset) is overstated by $36 000. The wampum effect is $14 000 ($50 000 †$36 000).\r\nBase Amount\r\nError as % of base\r\nProfit out front ta x\r\n$352 000\r\n4.0% (14/352)\r\nSales Revenue\r\n3 600 000\r\n1.4% (50/3 600)\r\nReceivables (current)\r\n621 000\r\n8.1% (50/621)\r\nInventory (current)\r\n345 000\r\n10.4% (36/345)\r\nThe omitted invoices are material in apprisal to inventories and should be adjusted.\r\n3.Bankruptcy of Debtor later reporting date\r\nThe adjustment will increase Bad Debts expense by $89 one hundred twenty and decrease\r\nAccounts Receivable by $89 120.\r\nBase Amount\r\nError as % of base\r\nProfit before tax\r\n$352 000\r\n25.3% (89 120/352 000)\r\nReceivables (current)\r\n621 000\r\n14.4% (89 120/621 000)\r\nThe overstatement is material in relation to both base amounts and must be adjusted as it relates to conditions quick at reporting date. promontory 12.3\r\nThe significant variances between the provision for warranty and the actual repairs in the two years indicate that either the policy of using a parting of net credit sales as a means of estimating warranty be is not appropriate, or the percentage apply is not adequate. The company needs to touch sensation at changing either its policy or perhaps simply change magnitude the percentage used. Past claims as a percentage of past net credit sales should provide a reliable measure. If a new percentage is pick out it will be applied prospectively (from 2015-16 on) correspond to AASB 108 paragraph 36.\r\nIf the variance for 2014-15 was due to an error in calculation then, providing it is material, the figures for 2014-15 should be retrospectively corrected (according to AASB 108 paragraph 42) by the following entry:\r\nRetained earnings (1 July 2015)Dr 8 000\r\nProvision for WarrantyCr8 000\r\nAdditionally, this would indicate that the variance in 2013-14 may be a one-off aberration.\r\nQUESTION 12.5\r\nRelease of investigator’s report on 1 August 2015\r\nThe bring on of the report and the decision that modify were payable by Antelope Ltd provide new information about conditions existing at the end o f the reporting period given that the judgement of dismissal of the noxious gases occurred in June 2015. At $750 000 the amount is clearly material (in relation to profit before tax of $360 000) and the following adjustment should be made:\r\nJune 30Damages expenseDr750 000\r\nDamages payableCr750 000\r\n(Recognition of damages liability)\r\nCredit notes raised on 9 July 2015\r\nAs these credit notes relate to sales which occurred prior to the end of the reporting period this provides more information about conditions existing at 30 June 2015 and will (or may, depending on materiality) require adjustment by diary entry. However, as the credit notes represent scarcely approximately 4% of profit before tax ($15 000/$360 000), it could be argued that no adjustment is necessary on the curtilage of immateriality. The journal entry (ignoring materiality considerations) is shown on a lower floor:\r\nJune 30Sales returns and allowancesDr15 000\r\nAccounts receivableCr15 000\r\n(Credit n otes relating to June sales)\r\nLiquidation of debtor\r\nAs the closure was caused by an event afterwards the end of the reporting period no adjustment will be made as this information does not change the locating that existed at 30 June 2015. However, the $52 000 loss (80 cents in the dollar x $65 000) will be material to following year’s profits ground on the current year’s profit before tax ($52 000/$360 000 = 14%), and must be expose by note.\r\nAntelope Ltd\r\nNotes to the financial statements year end 30 June 2015\r\nNote X:Events occurring after the end of the reporting period In September 2015, a debtor owing $65 000 went into liquidation. The company expects to recover only 20% of the amount owing.QUESTION\r\nAASB 108, paragraph 36 requires that the effect of a change in an accounting estimate shall be treasure prospectively by including it in profit or loss in the period of the change. mod information in the form of debts which really went bad during the year ended 30 June 2015 proved that the estimate of indistinct debts as at 30 June 2014 (last year) was inadequate and should have been $17 600 rather than $12 000. The amount of $5 600 ($17 600 †$12 000) in bad debts written off that was more than allowed for last year has been added to bad debts expense for the current year (i.e. prospectively) in pact with paragraph 36. The balance of the bad debts expense for the current year, $23 400, is comprised of $17 800 (allowance for doubtful debts as at 30 June 2015 ground on an analysis of outstanding account receivable balances) plus $5 600 (adjustment for underestimate of allowance for doubtful debts as at 30 June 2014).\r\nThe key issue here is whether or not the change in the way Mousedeer Ltd estimates its doubtful debts is a change in an accounting policy. AASB 108, paragraph 35 states ‘A change in the amount basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is problematic to distinguish a change in an accounting policy from a change in an accounting estimate, the change is set as a change in an accounting estimate.’ The asset here is Accounts Receivable, a financial asset which is measured at the lower of nominal value and redeemable amount.\r\nWhere a debt is not evaluate to be collected in full it is expose in the financial statements at its expected amount via the allowance for doubtful debt adjustment. The change in the way this ‘recoverable amount’ is estimated does not change the measurement basis and is therefore not a change in accounting policy. Mousedeer Ltd should disclose the nature and amount of any change in an accounting estimate (according to AASB 108 paragraph 39), usually in its accounting policy note.\r\n'