a) Year Lease Payments Present Value factor @ 10% Present value of lease payments
1 $ 100,000 1 $ 100,000
1-12 $ 70,000 6.814 $ 476,958
$ 576,958 [hence proved the implicit rate is 10%] AASB 16 - Leases
b) Construction Ltd Journal entries
1/07/23 Right of use asset $576,959
Lease Liability $576,959
1/07/23 Lease Liability $100,000
c) Crane Master Finance Ltd Journal Entries
1/07/23 Leased Asset $576,959
Leased Liability $576,959
1/07/23 Lease Liability $100,000
30/06/24 Lease Liability $50,696
Lease expense $19,304
d) Construction Ltd Journal entries
30/06/23 Interest $50,696
Lease liability $19,304
e) Crane Master Finance Ltd Journal Entries
30/06/24 Interest expense $50,696
Lease payment $50,696
[Interest recorded @ $(576,595 – 100,000) * 10%}]
a) A profit and loss, now known as statement of comprehensive income, shows you the income sources in comparison to your expenditures. Cash is blood, so a statement of cash flow shows the inflow of cash inflow and outflow from three sectors – operating, financing, and investing. The main difference between these two statements is that cash flow statement is more detailed in comparison to statement of profit and loss.
Therefore, the advantages of cash flow statements are that it tells a company about its liquidity position (i.e. the ability to pay the obligation at the earliest), it also indicates the actual cash flow that the statement of comprehensive income is unable to specify. The business health (in terms of profit) is determined by the statement of comprehensive income as it is the bottom line of it. The business performance is analysed through statement of comprehensive income and a forecast is developed on such analysis.
a) Secured creditors as per Section 12 (Personal Property Securities Act 2009) will be paid, such as mortgage over assets. The reason is that these secured creditors have the right to appoint independent receiver to get through their debt repayments.
Unsecured debts come later, such as ATO (for outstanding tax debt), since there are in-sufficient funds they could be paid on pro-rata basis. Section 556 of CA 2001 requires employees to be paid in the form of the dividend. The order suggested is as follows:
There are exceptions, such as the employees serving as director, spouse or relative of the director are excluded because they are also subject tp caps dividend and the perpetrators leading to insolvency. The pecking order of priority creditor payments will be useful here:
Statement of Liquidation $000
Debentures [secured] 55,000
Bank overdraft [secured creditor] 20,000
Workers compensation 350
Long service leave payment 550
Sick leave payable 375
a) AASB 101 – Going Concern states that while preparing financial reports, management should make an assumption and estimate based on the ability to continue [of entity’s] on a going concern basis. If this is not sufficing, the management using their best judgement skills have the ability to liquidate the entity or cease the operation, the assessment should be actively made in the notes to financial statement and the financial statement will not be prepared as per the going concern concept, it should be based on disclosure.
Furthermore, IAS 1 and IAS 10 i.e. ‘Presentation of Financial Statements’ and ‘Events after the Reporting Period’ respectively, requires a departure from the going concern. IAS 37 Provision, Contingent Liabilities and Contingent Assets and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations will be addressed and paid specific attention to. The major steps would be:
a) AASB 3 Business Combinations gives two choices of measuring non-controlling interests; one is to measure all components of an NCI at the fair value at acquisition date (including goodwill). Second one is to measure NCI on the proportionate basis (share) of the acquiree’s net identifiable assets (except for goodwill). These are in accordance with para 19 of the prevailing standard AASB 3 Business combinations.
b) Goodwill is subject to annual impairment review and should be conducted in line with AASB 36 Impairment of Assets. The NCI fair value goodwill will be higher because it will be grossed up by default, other than proportionate basis that will be grossed up by combining minority’s and parent’s share. Impairment losses at times do not impact NCI’s either that results in higher goodwill impairment too.
1. a) When a change in useful life estimate occurs, there’s no need to reflect that change in a journal entry. The depreciation charge would be subject to the new rate recorded (i.e. 7 years’ useful life). The computations are as follows:
Book value at the time of revision
$70,000/10 = $7,000 annual depreciation expense
3 years have been depreciated: $7,000 ‘ 3 = $21,000
Book value at time of revision: $70,000 - $21,000
Revised annual depreciation: $49,000/(10 yrs. - 7 yrs.)
= $16,333 revised annual depreciation
The depreciation expense would be: $16,333
Depreciation expense $16,333
Accumulated depreciation $16,333
b) Profit before tax has been arrived post-depreciation change in estimate:
Depreciation - 2023 2022
Original $7,000 $7,000
Change in estimate $16,333
Prior period errors
Prior period errors are misstatement and omission in the financial statements of an entity for a period or more, arising from a misuse, or failure, of a material misstatement or a provision of reliable information, that:
Will not appear in the adjustment to [other than comparatives] statement of comprehensive income.
2. a) Since this is a material error, AASB 108 – Accounting Policies, Changes in Account-ing Estimates and Errors, requires retrospective restatement – this means rectifying the recognition, measurement and disclosure of amounts due to new supplier in the set of fi-nancial statement as if to show the error had never occurred in the proper period.
Since this omission influences the economic decision making1 of stakeholders/ primary users, an assessment will also be required or expected to account for how this $11,000 omission affects the users of economic decision maker.
Suppliers/ Trade creditors $11,000
Bank/ Cash $11,000
Anon, 2020. Accounting Policies, Changes In Accounting Estimates And Errors. WILEY 2020 Interpretation and Application of IFRS® Standards, pp.117–137.
Anon 2020, Accounting Policies, Changes in Accounting Estimates and Errors. https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPjan15_07-15.pdf
Anon 2020, Intangible Assets. https://www.aasb.gov.au/admin/file/con tent105/c9/AASB138_08-15_COMPoct15_01-18.pdf
Anon 2020, Financial Instruments Presentation. https://www.aasb.gov.au/admin/file/content105/c9/AASB132_07-04_COMPdec13_01-14.pdf
Anon 2020, Non-current Assets Held for Sale and Discontinued Operations. https://www.aasb.gov.au/admin/file/content105/c9/AASB5_08-15.pdf
Anon 2020, Personal Property Securities Act 2009. Personal Property Securities Act 2009
Anon 2020, Presentation of Financial Statements. https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
Muddle, J., 2019. AASB 16 Leases: 2019 accounting changes. Accru.
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