Reference no: EM132918688
MA601 Theory and Current Issues in Accounting
Learning Outcome 1: Critically analyse and interpret current issues and developments in accounting theory and financial reporting.
Learning Outcome 2: Evaluate different accounting theories and their implications in policy choice by managers.
Learning Outcome 3: Synthesise the complex elements of the Conceptual Framework and apply them to accounting activities.
Learning Outcome 4: Apply their knowledge to identify strategies to meet accounting issues and problems in new situations.
Learning Outcome 5: Develop an ethical and social perspective on the use of accounting information.
Case Study 1
The conceptual framework: Purpose, reporting entity, the objective of financial reporting in Australia:
Two final year MPA students, Alan Wilson and Ken Maxell are discussing different aspects of Chapter 1 of Accounting Conceptual Framework 2019 revision, ‘the Objective of General Purpose Financial Reporting'. They are paying their attention on the "Objective, usefulness and limitations of general purpose financial reporting" given therein. Alan says that this ‘objective of general purpose financial reporting' provides little, if any, guidance to the today's practising professional accountant in resolving accounting controversies. He believes that the statement gives such broad guidelines that it is impossible to apply the objective to present day reporting problems. Ken concedes this point, but says that an objective is still needed to provide a starting point for the improvement of financial reporting in Australia.
Required:
1. Describe the purpose of accounting conceptual framework for financial reporting.
2. Explaingeneral-purpose financial statements.
3. Describe the objective of general purpose financial reporting in Chapter 1 of Framework 2019.
4. Explain the types of financial information that are to be presented in financial statements in order to achieve the objective.
5. Critically evaluate the meaning of Ken's statement that a starting point is needed to resolve issues in financial reporting.
Case Study 2
Accounting for Revenue
Wood Delights Ltd (WDL), which is a reporting entity, manufactures office furniture. The management of WDL is concerned about a downturn in the company's business. Sales have been falling and the company is facing liquidity problems. Management is worried that these factors may mean that shareholders are unhappy with the company's dividend policy and management bonuses tied to reported profits will not be paid this year. To try to alleviate these problems, WDL enters into an enforceable contract with Castor Ltd. The cost of the inventory to WDL was $ 1 200 000 but its fair value at the time of transaction (signing the contract) was $ 1 280 000.
However, WDL and Castor Ltd have agreed to a selling price of $ 1 310 000 for this inventory, and Castor Ltd agrees to make full payment immediately upon signing the contract. It is also agreed that WDL will not physically transfer the inventory from its ware house to Castor Ltd, as Castor Ltd has no suitable storage facilities.
Required
1. Explain the five-step model adopted by AASB 15 for recognising revenue.
2. Applying AASB15, when should WDL recognise revenue from this contract? Explain.
3. What general journal entry should WDL recognise when cash is received,at the time of signing the contract? (Prepare the journal entry)
4. Explain the effect of your journal entry on WDL's financial statements.
Case Study 3
Accounting for leases
Robin Ltd operates in a very competitive printing field. To maintain its market position and providehigh quality printing services it used to purchase new printing machines, and maintained them at a high cost. Due to Covid19 the company has been experiencing significant cash flow problems. One of the board of directors suggested at the board meeting to lease machines required by the company rather than purchasing for cash, and the chairman of the board wants to accept this proposal as a company policy.
Oceans Ltd manufactures specialised printing machines for both sale and lease. It agrees to lease a brand new printing machine to Robin ltd.
The lease agreement contained the following provisions.
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Length of lease
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5 years
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Commencement date
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1 July 2020
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Annual lease payment, payable 1 July each year commencing 1 July 2020
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$200 000
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Estimated economic life of the machine
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5 years
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Annual Interest rate implicit in the lease
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5%
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Chairman of the board directed company accountant to submit a detailed report on the above project.
Required
1. Define a lease. Identify five key provisions that are likely to be included in a lease agreement.
2. From the point of view of the lessee, outline the advantages and disadvantages of leasing.
3. Outline the main requirements of AASB16 "leases" to account for leases by the lessee.
4. Show general journal entries to record the lease transition for the first year in the books of the Robin Ltd(Lessee) in accordance with AASB 16.
Case Study 4
Earnings per share
Powersys Ltd is an electricity distribution company based in Melbourne. Its business is to manage the electricity assets, including poles, wires and other equipment, that are used to deliver electricity to more than 500 000 retail and business customers in Victoria. Pole wire and substation maintenance and improvements are a large part of the company's operation and teams of highly trained technicians are used for both planned work and emergency response activities. Emergency response is required when storms or fires bring down power lines, the power must be turned off at the direction of police, or the electricity supply fails for any reason. These escalated activities badly affected company earnings.
One of the assistant accountants of the company has the task of assessing the liquidity and solvency and earnings of the company and identifying the operational and financial risks arising from this aspect of the business. She discovers that a major long-term debt is due for repayment and company is unable to meet this debt obligation. She suggested converting this long-term debt for ordinary shares after consulting the debt holder, which shareholders resisted badly.
Despite these drawbacks, the basic earnings per share and diluted earnings per share presented in company's current year financial statements in accordance with "AASB 133 Earnings per Share" were comparatively higher than that of the last year. In contrast, company share prices had dropped by 5% at the reporting date, according to Yahoo finance.
The directors of Powersys Ltdare not sure how to calculate and include basic and diluted earnings per share in company's financial statements in accordance with AASB 133, and called for a report from the chief accountant of the company.
On 30 June 2020, Powersys Ltdhad the following equity:
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Preference shares (issued at $ 2 each)
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300 000 shares
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Ordinary shares (issued at $ 4 each)
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$ 4 000 000
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Retained earnings
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$1 350 000
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Reserves
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$ 275 000
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Total equity
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$ 6 225 000
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During the year ended 30 June 2020, the company earned after tax profit of $1 290 000 from ordinary activities.
The additional information is available.
i. On 20 November 2019, the company made a one-for-five bonus issue, and on 30 March 2020, the company made a rights issue of 400 000 ordinary shares.
ii. On 20 July 2017, the company issued $ 750 000 of 8% convertible notes. Each $ 100 note was convertible into 50 ordinary shares. There was no conversion during the year ended 30 June 2020.
iii. On 28 February 2019, the company issued options to purchase 10 000 shares at $ 3.50 each. No options were exercised during the year ended 30 June 2020.
iv. The company income tax rate is $ 0.30 in the dollar and the company's ordinary shares are trading at $ 5 per share on 30 June 2020.
v. The company paid preference dividends of $ 90 000.
Required
1. Distinguish between basic and diluted earnings per share.
2. Outline the arguments for and against the mandatory disclosure of earnings per share. What is your view?
Following the requirements of AASB 133:
3. Calculate basic earnings per share.
4. Calculate diluted earnings per share.
Attachment:- Theory and current issues in Accounting.rar