The regulatory environment and financial reporting
You are employed in a large accounting firm which specialises in preparing general purpose financial reports for large companies that are listed on the Australian Securities Exchange (ASX). As the training manager, one of your key tasks is to prepare a regular newsletter for staff involved in the preparation of the above financial reports. The purpose of the newsletter is to keep staff updated on the latest financial reporting news, alerting staff of changes and developments that may impact their work, and provide enough information to staff to satisfy the following:
- For staff to understand the nature of the news / change / development and its potential impact (so staff can decide whether they need to investigate further given the nature of their own work);
- Provide directions to staff of where they can access further information on the news / change / development if they wish to (including website links where appropriate).
Required:Prepare a 2 page newsletter that identifies and summarises changes / developments and news in the financial reporting environment for the period from 1 April 2019 to 31 July 2019.
Financial statement presentation
Snow Gear Ltd, a manufacturing company, commenced operations on 1 July 2018. You are the company’s financial accountant.
The trial balance for the year ended 30 June 2019 has been prepared as follows:
|Snow Gear Ltd|
|Trial balance as at 30 June 2019|
|DR ($)||CR ($)|
|Cost of goods sold||860,000|
|Salaries and wages – administration staff||50,000|
|Salaries and wages – selling and distribution staff||180,000|
|Annual leave expense – administration staff||3,000|
|Annual leave expense – selling and distribution staff||16,000|
|Doubtful debts expense||4,000|
|Income tax expense||375,000|
|Cash on hand||41,000|
|Cash management account||200,000|
|Raw material inventory||206,000|
|Finished goods inventory||456,000|
|Accumulated depreciation – buildings||20,000|
|Plant and equipment||900,000|
|Accumulated depreciation – plant and equipment||70,000|
|Deferred tax asset||13,000|
|Deferred tax liability||8,000|
|Allowance for doubtful debts||2,600|
|Provision for annual leave||19,000|
|Provision for warranty||28,000|
|Current tax liability||380,000|
|Retained earnings, 1 July 2018||0|
- In relation to ‘other expenses’ in the trial balance, 90% relates to administration, and 10% relates to selling and distribution. In relation to ‘depreciation expense’, 80% relates to selling and distribution, and 20% relates to administration.
- Raw materials used during the year totaled $1,316,000.
- The bank loan is repayable over 10 years ($30,000 principal each year).
- The provision for annual leave is payable within 1 year.
- The provision for warranty is in respect of 12-month warranties given on all products sold.
- Share capital consists of 1,000,000 ordinary shares, fully paid to $2.00 each.
- Snow Gear Ltd is a reporting entity.
- In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Snow Gear Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.
- Prepare a memo to the directors, explaining the methods available for classifying expenses on the statement of profit or loss and other comprehensive income. The directors would also like to know which method will result in the highest profit being reported to shareholders. Finally, also advise the directors of any factors that need to be considered when selecting between the available methods. Provide references to key paragraphs in the accounting standards.
- To illustrate the differences in the methods discussed above, prepare the statement of profit or loss and other comprehensive income using each of the available methods, for the year ended 30 June 2019, in accordance with AASB 101. Use the single statement format. Show all workings (for example, to show how amounts in the financial statements have been calculated).
- Prepare the statement of financial position of Snow Gear Ltd as at 30 June 2019, in accordance with AASB 101. Notes and comparative figures are not required. Show all workings (for example, to show how amounts in the financial statements have been calculated).