International Financial Reporting Standards

Question 1                                                                                          

“Global adoption of International Financial Reporting Standards (IFRS) is thought to increase financial statement reliability and comparability. Although IFRS is required or allowed in over 130 nations, some countries modify IFRS as issued by the International Accounting Standards Board (IASB)” (Felski, 2017, p. 59).

Reference:

Felski, E. 2017. How does local adoption of IFRS for those countries that modified IFRS by design, impair comparability with countries that have not adapted IFRS? Journal of International Accounting Research, Vol. 16, No. 3, pp. 59-90.

Required:

  • Briefly discuss the above statement and outline the organisation of the assignment in the Introduction section
  • Do you think that the quality of corporate reporting/disclosure has been improved after the adoption of IFRS since 2005 in Australia, European Union and other adopter countries?
  • What are the reasons for not adopting IFRS by the FASB in the US?
  • What are the current challenges faced by the IASB?
  • Do you think IASB will be successful in harmonising accounting standards throughout the world?
  • Summarise the assignment in the Conclusion section
  • Provide references (at least 10 articles/sources) in the end of the assignment

Question 2                                                                                                 

Billabong Ltd began operations on 1 July 2018. One year after operations, the entity presents its first Statement of Comprehensive Income and Statement of Financial Position on 30 June 2019. However, the statements were prepared for internal purposes and  income tax calculations were ignored. Accounting profit before income tax for the year 30 June 2019 of Billabong Ltd amounted to $1,340,000, including the following revenue and expenses.

                $
Sales Revenue5,860,000  
Cost of sales  3,225,000
Salaries/ Wages360,000
Rent of premises  37,000
Administrative expenses 264,600
Entertainment costs  22,000
Long service leave126,000
Warranty expenses  75,600
Depreciation expense – Plant and Equipment100,500
Depreciation expense – Computers116,000
Depreciation expense – Buildings  25,000
Insurance  69,300
Other expenses  99,000

Billabong Ltd

Assets and Liabilities disclosed in the Statement of Financial Position for the year ended 30 June 2019

     $     $
Assets
Cash/ Bank      51,000
Accounts Receivables (net)    189,000
Inventory    251,400
Prepaid insurance      25,950
Plants & Equipments – cost1,005,000
Less – Accumulated depreciation   100,500  904,500
Computers- cost  580,000 
Less – Accumulated depreciation  116,000    464, 000
Buildings- cost  300,000 
Less – Accumulated depreciation    25,000    275, 000
Land1,134,000
Total assets3,294,850
Liabilities
Accounts payables   201,600
Rent payable     25,000
Provision for warranty expenses     50,400
Provision for long service leave     44,100
Loan payable   504,000
Total liabilities   825,100
Net assets2,469,750

Additional information:

  • The plants & equipments are depreciated over 10 years for accounting purposes, but over 8 years for taxation purposes. The useful life of computers is 4 years for the tax purposes and 5 years for accounting purposes. Therefore, there is a temporary difference between accounting and taxation depreciation for plant & equipments, and computers.
  • Billabong Ltd has some land which cost $735,000 and which has been re-valued to its fair value of $1,134,000.
  • All administration, salaries and wages and other expenses incurred have been paid as at year-end.
  • The amount of $81,900 long service leave expense has been paid.
  • Amounts received from sales, including those on credit terms, are taxed at the time of the sale is made.
  • Warranty expenses were accrued and, at the year-end, actual payments were made of $25,200. Deductions for tax purposes are only available when the amounts are paid and not as they accrued.
  • Insurance was initially prepaid to the amount of $95,250. Actual amounts paid are allowed as a tax deduction.
  • Entertainment expenses and depreciation of buildings are not allowed as deductions for income tax.
  • The tax rate is 30 per cent.

Required:

  • Compute the taxable income or loss (using excel spreadsheet).
  • Complete the Taxation Worksheet on the next page in accordance with AASB 112 Income Taxes (using excel spreadsheet).
  • Prepare the applicable journal entries at 30 June 2019 to account for tax using the balance sheet method.

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