Financial Accounting Assessment

Question 1

Bradfield Ltd is registered as a public company and is required by the Corporations Act 2001 to prepare a financial report for each financial year (s. 292) that complies with Australian accounting standards (s. 296). The financial statements prepared by Bradfield Ltd are general purpose financial statements because Bradfield Ltd is a reporting entity as defined in SAC 1 Definition of the Reporting Entity. The following is an extract from the trial balance prepared by Bradfield Ltd’s accounting staff for the year ended 30 June 2016.

Required

 

Prepare the Statement of profit or loss and other comprehensive income for Bradfield Ltd for the year ended 30 June 2016 in accordance with the requirements of AASB 101 Presentation of Financial Statements. 

In addition to referring to AASB 101 Presentation of Financial Statements, you may find it useful to refer to IAS 1 Presentation of Financial Statements Implementation Guidance (in Moodle) which provides examples of financial statements prepared in accordance with IAS 1 Presentation of Financial Statements which is the international equivalent of AASB 101 Present ation of Financial Statements.

Question2

Bendigo Ltd sells consumer whitegoods through 100 retail outlets throughout Victoria, New South Wales and Queensland. Bendigo Ltd leases the retail outlets and their accounting policy (in accordance with AASB 117 Leases) is to classify leases as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee (Bendigo Ltd); all other leases are classified as operating leases. In applying this policy, Bendigo Ltd has classified all of its leases for the retail outlets as operating leases. In February 2016, the AASB issued a new accounting standard (AASB 116 Leases which is based on the new IFRS 16 Leases) that introduces a new accounting policy for the classification of leases. Although AASB 116 Leases does not become effective for some years, early adoption is permitted and Bendigo Ltd has decided to adopt it for the reporting period ending 30 June 2016.

In July 2015, at the beginning of the current reporting period, Bendigo Ltd decided to change its accounting policy for the valuation of inventories from a weighted-average cost (WAC) method to a first-in, first-out (FIFO) method. Bendigo Ltd believes that the FIFO method more accurately reflects the usage and flow of inventories in the economic cycle.

 Required

(a) How is a provision defined in AASB 137 Provisions, Contingent Liabilities and Contingent Assets? Why would Benson Ltd’s obligation to restore the contaminated environment be classified as a provision?

(b) Briefly explain the three methods that, according to AASB 137 Provisions, Contingent Liabilities and Contingent Assets, can be used by an entity to estimate the amount to be recognised as a provision.

(c) How has Benson Ltd taken risk into account to estimate the amount to be recognised as a provision? What is an alternative approach to taking risk into account?

(d) From the information in the question, calculate the amount that Benson Ltd should recognise as a provision as at 30 June 2016.

(e) By how much will the provision have increased as at the end of the following year on 30 June 2017? How should Benson Ltd account for the increase?