Accounting Scholarship Workshop 2018

Transcription

1 Accounting Scholarship Workshop 2018

2 List of Materials 1. Workshop slides 2. At your own time sample questions 3. Recommended reading extracts of the following documents: a) New Zealand Equivalent to the IASB Framework for Financial Reporting 2010 (NZ Framework) b) New Zealand Equivalent to International Accounting Standard 1, Presentation of Financial Statements (NZ IAS 1) c) New Zealand Accounting Standard Framework d) 2018 updated NZ Conceptual Framework e) Integrated Reporting Framework

3 2/10/2018 New Zealand Scholarship Accounting Workshop 1/2 2 October 2018 Facilitator: Dr Julia Wu Learning objectives At the end of today s workshop, I will be able to Understand the scope and depth of technical knowledge and cognitive skills that are expected for a successful candidate of NCEA Scholarship Accounting; and Understand how to strategically prepare for your examination of 2018 NCEA Scholarship Accounting. We will work on selected examples and discuss how to improve our skills of answering exam questions 1

4 2/10/2018 Welcome! Overview : New Zealand Scholarship Accounting 2018 Topic one: Topic two: Topic Three: New Zealand Framework NZ IAS 1 and other Financial Reporting Standards Management Accounting and Decision Making Break Topic Five Topic Four: New Zealand Accounting Standards Framework Current issues in accounting Overview: New Zealand Scholarship Accounting 2018 Section 1 The scholarship exam, some details Date:? Time:? There will be four (4) questions. Questions may be divided into more than one part Coverage: a combination of a statement of comprehensive income and/or statement of financial position and/or a statement of changes of equity, and accompanying notes for a company, prepared for external reporting purposes demonstrating understanding of management accounting to inform decision making the New Zealand Equivalent to the IASB Framework for Financial Reporting 2010 (NZ Framework) a current issue (resources to be provided). 2

5 2/10/2018 Materials that are required to be familiar with The updated Level 3 Accounting and Scholarship Appendix on TKI for use from 2013 NZ Framework NZ IAS 1 the External Reporting Board Standards for For Profit Entities Accounting Standards Framework (For profit Entities) The New Zealand Framework (2010) The Building Blocks of a Conceptual Framework Basic Assumptions Accrual basis Going Concern Accounting Entity Periodicity Qualitative characteristics: Relevance Faithful representation Verifiability Timeliness Understandability Comparability Measurement Monetary unit Cost based Value based Present value Constraints Cost and benefit trade off Elements: Assets Liabilities Equity Income Expenses Objective of General Purpose Financial Reports: to provide information about the financial position and financial performance of the reporting entity that is useful to present and potential equity investors, lenders and other creditors in the capacity as capital providers. 3

6 2/10/2018 Definition of elements (1) fill in the blanks The elements directly related to the measurement of financial position are assets, liabilities and equity. These are defined as follows: 1. An asset is a resource by the entity as a result of and from which are expected to flow to the entity. 2. A liability is a of the entity arising from past events, the of which is expected to result in an outflow from the entity of resources embodying. 3. Equity is the in the assets of the entity after deducting all its liabilities. Recognition Criteria for the Elements (Fill in the blanks) In order to recognise an item in the financial statements It must be that any associated with the item will flow to or from the enterprise AND The item has a that can be The Assessment: Application, critical thinking and communication 1. Nature of the accounts 2. The accepted accounting treatments Articulate (explain, discuss) Evaluate (conclude, provide reasons) 4

7 2/10/2018 Example Previous Scholarship Exam Questions More recent examples Year question Reference required material 2014 Critique accounting treatment - intangible assets, by using the definitions and recognition criteria NZ Framework and NZ IAS Critique the accounting treatment - remuneration [liability, provision or contingency] by using the definitions and recognition criteria of liabilities 2016 To recommend an accounting treatment pre-collected revenue 2017 Q1 Discuss the meaning of 'materiality' in the context of Sanford's integrated annual report. Compare and NZ Framework and NZ IAS 37 NZ Framework and NZ IAS 37 IIRC Framework and NZ Framework contrast the 'Materiality' of IR and that of NZ Framework 2017 Q2 Using the definition and recognition criteria contained in NZ Framework, NZ NZ Framework to critique an accounting measure of IAS 38 and NZ IAS 2 asset (inventory) Accounting for liabilities NZ Framework (application: NZ IAS 37) Payable Accrual Provision Contingent Liability Examples Trades payables Accrued salaries and wages Provision for warranty Pending lawsuit (high uncertainty) Based on past Yes Yes Yes No events/transactions? Current obligation? Yes Yes Yes (contractual/legal) No (contractual/legal) Settlement probable? Yes Yes Yes No Measured reliably? Yes invoice based Yes based on agreement Balance day adjustment Yes estimated No Accounting treatment Recognised as liability Recognised as liability Recognised as provision, usually accompanied by qualitative notes Only disclose if material. Not recognised 5

8 2/10/2018 Intangible Assets NZ Framework (application: NZ IAS 38) 3 broad categories: Research and development Patents, copyrights, brand names, trade secrets, trade marks, franchises, concessions, operating right or right of use Computer software (developed internally or acquired from a third party) Key point of agreement: are they assets? Intangible Assets NZ Framework (application: NZ IAS 38) Continued An intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes Useful life is the period of time over which an asset is expected to be used by the entity Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Not capitalised as a part of the cost of intangible asset. Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services prior to the commencement of commercial production or use. Capitalised as a part of the cost of intangible asset. Summary/Reflection (1) 1. Read the question carefully and answer what is required. 2. Your conclusion is important! 3. Citing the definitions and recognition criteria is not sufficient. 4. Give relevant examples. 5. Consider the implications of double entry system for accounting treatment 6. Common areas of discussion: Liabilities Assets Expense Income Recognition criteria 6

9 2/10/2018 Summary/Reflection (2) 1. New Trend: may depart from assessing specific accounting standards but to focus on the accounting elements of NZ Framework 2. Assessing new contents in the current version of NZ Framework: qualitative characteristics, materiality, matching principle, accrual basis and/or going concern. 3. Blending NZ Framework with a current issue in accounting (possibility): Integrated reporting purpose, users, 6 capitals, and principles. Are they in harmony or in conflict with NZ Framework? Newly updated NZ Framework Newly updated and/or implemented standards NZ IAS 1 and other financial reporting standards Accounting entries Transactions Daily operations Based on source documents Examples: sales, purchases, payments, receipts, Events Incidental Evidence based Examples: impairment of assets, acquisition and disposal of assets Adjustments For the purpose of financial reporting Reliance on professional judgement Examples: depreciation, accruals, allowances, provisions, fair value adjustment Other: closing entries, reversing entries, corrections 7

10 2/10/2018 Accounting entries PPE related: acquisition, depreciation, impairment, revaluation, and disposal/exchange Period inventory adjustment Bad debts and doubtful debts Share buy back Accrued expenses Prepayment Preparation of Financial Statements Statement of comprehensive income Income Expenses Profit/loss Statement of Changes in Equity Opening balance Changes in equity Additional investment? Profit/loss [Distributions] Closing balance Statement of Financial Position Assets Current cash Non current Liabilities Current Non current Equity 8

11 2/10/2018 Classify expenses by nature Classify expenses by function Statement of comprehensive income Statement of comprehensive income Revenue $ xxx,xxx Revenue $xx,xxx Other income xxx,xxx Less: cost of goods sold x,xxx Less expenses Gross profit xx,xxx Cost of sales Depreciation Amortisation Employee expenses Other expenses Profit before tax Income tax Profit after tax Comprehensive income Total comprehensive income xx,xxx xx,xxx xx,xxx xx,xxx xx,xxx xx,xxx Xx,xxx Xx,xxx Xx,xxx Xx,xxx Less: operating expenses Sales and distribution Administrative expenses Finance expenses Other income/expense Profit before tax Income tax Profit after tax Comprehensive income Total comprehensive income xx,xxx xxx,xxx x,xxx xx,xxx Xx,xxx Xx,xxx Xx,xxx Xx,xxx Notes to the financial statements Components: 1. Statement of Accounting Policies Reporting entities Articulation of how relevant legislation and accounting standards are applied in the financial statements 2. Notes to the financial statement Referring to particular accounts or balances Breakdowns: Required separate disclosures: incidental gain, losses, provisions, Reconciliations: PPE* Qualitative disclosure events after balance date e.g. dividends. In particular contingencies Methodologies of measurements: revaluation of asset Other information that will assist users understanding of financial statements at entirety or any particular account(s)/balance(s): audit fees, Notes to the financial statements How to prepare? Cover as many line items as you can Based on the available information Consider the users perspective Include reference numbers in the faces of the may statements Concise and consistent layout Professional representation for qualitative information 9

12 2/10/2018 Topic 3 Management Accounting and Decision Making Management Accounting and Decision Making: AS91408 Demonstrate comprehensive understanding involves: preparing extensive financial information justifying the application of management accounting elements to inform decision making, based on financial and non financial information. Decisions may be routine or strategic decisions. Scope Management accounting elements may include a selection from: Budgets; Cost concepts; Comparison of actual results with budgets. Financial information may include a selection from: cash budget cost volume profit (CVP) calculations CVP graph CVP profit statement Note: CVP analysis is restricted to one product or service. 10

13 2/10/2018 BREAK Topic 4 Introduction The role of XRB User need approach Multi standards approach Tier structure For profit entities and public benefit entities (PBEs) 11

14 2/10/2018 For profit entities: scope Tier 1 With Public Accountability (as defined) Accounting Standards NZ IFRS Large (as defined) for profit public sector entities Tier 2 Without Public Accountability (as defined) Non large, for profit public sector entities NZ IFRS with reduced disclosures (also called NZ IFRS RDR) which elect to be in Tier 2 How to prepare The application of the tier structure Which tier does an entity fit in? What is the corresponding requirements for accounting and financial reporting? Conclude, justify and explain 12

15 2/10/2018 Topic 5 Current issues in accounting I. Integrated Reporting A new form of corporate reporting aimed primarily at providers of capital It tells an organisation s value creation story It is much more than bringing together financial and sustainability reporting It does not replace either financial or sustainability reporting both need to be in place for integrated reporting Integrated reporting How it has been assessed (Prior to 2017) Year Scholarship exam question (extract) 2016 Critically evaluate how well Sanford Limited has addressed the reporting for natural capital in its 2015 Integrated Annual Report Explain to a New Zealand business owner what natural capital is, and whether accounting for it is an important current issue that should be considered Explain the concept of integrated reporting, and detail the potential benefits for users of integrated reports The benefit of integrated reporting is that it enables stakeholders to evaluate value creation across a broad range of areas. In spite of the perceived benefits of integrated reporting, concerns have been raised by a number of different parties. Required Explain what you think are the potential concerns associated with integrated reporting. 13

16 2/10/2018 I. Integrated Reporting (1) Purpose and users The primary purpose of an integrated report is to explain to providers of financial capital how an organisation creates value over time. It therefore contains relevant information, both financial and other. An integrated report benefits all stakeholders interested in an organization s ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators and policymakers. I. Integrated Reporting (2) 6 capitals Longer term strategic planning Focus on the six capitals Value creation integrated thinking, integrated reporting, integrated report Some examples 6 examples EXAMPLES? Capital? Capital? Capital? Capital Private Ownership Factories Buildings Health & safety Training Job Skills Reputation Value chain Gardens Plantations Forests Community Ownership * Community Centres Community Schools Sports facilities Traditional knowledge Communal education Community Norms and Customs Culture Community reserves Greenbelts Public Ownership * Infrastructure Public facilities Public databases Non patent knowledge Law & Order Taxation Social Equity & Inclusion High Seas fisheries NationalParks/ Forests 14

17 2/10/2018 I. Integrated Reporting (3) Guiding Principles I. Integrated Reporting (4) How to prepare Be familiar with IIRC Framework 1. Purpose and users of an integrated report 2. Six capitals 3. Seven Guiding Principles Compare and contrast with NZ Framework (required) 1. Objective of General Purpose Financial Reports: 2. Concept and recognition criteria of assets are the six capitals of IR assets from the accounting perspectives definition/recognition criteria 3. Guiding principles v.s. qualitative characteristics and other assumptions and principles II NZ Conceptual Framework Issued by XRB in May 2018 Effective for annual periods beginning on or after 1 January 2020 Key changes Revised objectives of general purpose financial reports Reintroduce the terms stewardship and prudence Revised definitions of accounting elements 15

18 2/10/2018 What s next? Practice makes perfect! Previous scholarship exams NZ Framework Accounting entries Preparation of financial statements Previous NCEA Accounting Exams Management Accounting Additional accounting exercises on current issues Other supplementary exercises Reading IIRC Framework 2018 NZ Conceptual Framework Other reading list 16

19 At your own time Sample question 1: NZ Framework Kuhns Naval Supplies Limited is owned and operated by the Kuhns family. Based in Lyttelton, Christchurch, Kuhns Naval Supplies Limited provides goods and spare parts for ships visiting the Port of Lyttelton. The company imports its ship and naval supplies from Europe and Australia. Mr Murray Kuhns, Chairman of the company, once said to the accountant that The most valuable asset of our company is the location. But we cannot put it on our balance sheet! REQUIRED: Critically evaluate Murray s statement by referring to the definition and recognition criteria contained in the New Zealand Equivalent to the IASB Conceptual Framework for Financial Reporting 2010 (NZ Framework), Sample question 2: NZ Framework Your friend has a business Easy Event Management Ltd. During the financial year, your friend developed an app myevent, that can be used by mobile phones and other devices. This app is used for conference or exhibition organisers, participants, exhibitors and event goers to view, update and share the agenda, catering, transport, contact, venue and other information. It also has a social media function and allow event goers to post pictures, text comments on particular issues. Your friend provides you with a list of figures showing how they have arrived at the value of myevent to include in their Statement of Financial Position. MyEvent (App) Feasibility study cost $2 000 Development and testing cost Market research cost Market value of My Event Total asset value $ The value of $ for MyEvent was determined through market research by an international firm that specialises in valuing apps. In their report, the international firm suggests that as MyEvent is likely to be well received and to have high demand, a value of $ can be placed on it. REQUIRED Using the definition and recognition criteria contained in the New Zealand Equivalent to the IASB Conceptual Framework for Financial Reporting 2010 (NZ Framework), explain to your friend whether or not they have correctly determined the value of MyEvent (app) to be included in the company s Statement of Financial Position.

20 Sample question 3: NZ IAS 1 and GAAP The following information has been extracted from the financial records of Wilbert Limited at 30 June NZ$ Accounts payable 364,650 Accounts receivable 666,900 Accumulated depreciation buildings 1,259,250 Accumulated depreciation plant and equipment 2,119,350 Allowance for doubtful debts 20,850 Buildings 6,936,000 Cash at bank 928,350 Contributed equity 8,092,800 Dividends paid 144,000 Income tax payable 160,350 Inventory 1,536,450 Land 11,964,000 Long-term loan payable 5,565,600 Plant and equipment 4,110,300 Profit for the year 1,494,450 Retained earnings 2,888,700 Revaluation surplus land 4,320,000 Additional information 1. On 1 January 2018, the land and buildings were revalued by R Lawrenson, an independent valuer. The revaluation of $10,729,500 for the land and $7,140,000 for the buildings was based on the market value of the surrounding properties. Depreciation and revaluation adjustments have yet to be made for the current reporting period. 2. Wilbert Limited initially records all items of property, plant and equipment at cost. Depreciation is calculated on the straight-line basis at the following rates: 3. Plant and equipment 20 per cent per annum 4. Buildings 5 per cent per annum.

21 5. The directors have decided to make an allowance for doubtful debts at 7.5 per cent of the accounts receivable balance at the reporting date. This adjustment has yet to be made. 6. During the current reporting period, Wilbert Limited issued an additional 100,000 ordinary shares at $3.24 each. The adjustment to take this entry into account has been made. 7. The long-term loan payable is secured over the company s land. 8. Income tax payable has been correctly calculated. REQUIRED 1. Prepare any necessary General Journal entries for items 1 to 3 that can be determined from the additional information provided. 2. Prepare the asset and equity sections of the Statement of Financial Position as at 30 June Prepare only the appropriate accompanying property, plant and equipment disclosure note in a format suitable for external reporting purposes. 4. Prepare the Statement of Changes in Equity for the reporting period ending 30 June Note: Use only the information provided. Ignore GST. Sample question 4: NZ Framework Your friend Eddy has a business Easy Event Management Ltd. The company specialises in the areas of event, conference and wedding planning in Christchurch. As a standard practice, your friend invoiced his client and request a non-cancellable payment of 20% of the total quoted price for an event 10 working days before the actual date of event. REQUIRED Explain how your friend should recognise this payment. You need to refer to the New Zealand Equivalent to the IASB Conceptual Framework for Financial Reporting 2010 (NZ Framework).

22 Sample question 5: NZ IAS 1 and GAAP The following information has been extracted from the accounting records of Bob Builder Limited for the reporting period ending 31 March Dr Cr NZ$ NZ$ Advertising expenses 51,900 Auditors remuneration 67,380 Bad debts expense 15,320 Depreciation expense 109,600 Dividends received 53,740 Electricity expense 198,600 General expenses 122,860 Income tax expense 66,200 Insurance expense 25,200 Interest expense 27,000 Interest received 61,960 Inventory at 1 April ,900 Loss on sale of equipment 6,400 Purchases 1,483,320 Rent expense 388,800 Sales 3,214,480 Staff salaries expense 576,660 Net assets 46,040 3,330,180 3,330,180 Additional information 1. Inventory on hand at 31 March 2018 was $ A 12-month insurance policy covering accident, fire, and theft was purchased on 1 August 2017 for $ On 1 October 2013, Bob Builder Limited borrowed $ from a bank. The loan is repayable in full on 1 October The bank charges interest at the rate of 9 per cent per annum. 4. A debtor who owed Bob Builder Limited $ on 31 March 2017 was declared bankrupt on 18 May The auditors have advised the directors that under New Zealand equivalents to International Financial Reporting Standards, this amount should be written off at the reporting date. 5. As a result of this transaction, Bob Builder Limited decided to create an allowance for doubtful debts of $ for the reporting period ending on 31 March Auditors remuneration comprises $ for the annual audit and $ for consulting services, with the balance paid for taxation services. 7. The loss on the sale of equipment arose from the disposal of building equipment.

23 8. In the General expenses account, $ is included for donations made to a local school. The balance of General expenses should be allocated to Administration expenses. 9. Management allocates company expenditure as follows: Administration expenses Cost of sales Distribution costs Depreciation 50% 40% 10% Electricity expense 35% 40% 25% Insurance expense 20% 70% 10% Rent expense 25% 60% 15% Staff salaries 20% 70% 10% 10. The income tax expense has been correctly calculated. REQUIRED 1. For items 1 to 5 of the additional information above, provide the journal entries and narrations necessary to correctly account for the transactions. 2. Prepare, in a format suitable for external reporting purposes, Bob Builder Limited s Income Statement classified by function, together with accompanying notes, for the reporting period ending 31 March Ignore GST. You are NOT required to provide a tax note. Sample question 6: NZ Framework Your friend Jeremy grew up in the family farm owned and operated by his parents. Jeremy knows that you are studying accounting so he came to you to discuss the following items: baby lambs were born in this lambing season. 2. The fresh air and sunlight are essential for the farm. REQUIRED: Explain to your friend whether each of the above items can be regarded as asset for a commercial farm, using as a basis the definition and recognition criteria of the financial elements in the New Zealand equivalent to the IASB Conceptual Framework for Financial Reporting 2010 (NZ Framework).

24 Sample question 7: NZ Framework On 1 January 2018, the company your friend works for appointed a new Chief Executive Officer (CEO) on a five-year contract. To ensure that the company employed the best person, the CEO s remuneration package included a signing-on payment of $ on the day they started work, as well as an annual salary of $ The agreement also provides that if the company s profit increases on or above 1.5 per cent every year, the CEO will receive 20,000 shares of the company once the audited annual report are released. On 31 December 2017, the company s share is value at $2.00 per share. On 30 June 2018, the company s half-year financial results indicate that the company has an increase of profit of 1.5 per cent since 30 December Your friend believes that the best way to account for the remuneration payment is as follows. 1 Jan 2018 Dr Remuneration in advance Cr Cash Recognising payment of CEO s signing-on bonus at date of employ 30 Jun 2018 Dr Employment benefit expense Cr Bonus payable Recognising payment of CEO s bonus for profit increase up to 30 June 2018 At the 31 December 2018 reporting date, the payments of the salary would be accounted for as follows: 31 Dec 2018 Dr Employment benefit expense Dr Bonus Payable Cr Remuneration in advance Cr Cash Recognising CEO s employment benefit expense for the year REQUIRED Discuss whether you agree with the accounting treatment for each of the two journal entries above, using as a basis the definition and recognition criteria of the financial elements in the New Zealand equivalent to the IASB Conceptual Framework for Financial Reporting 2010 (NZ Framework).

25 Sample question 8: NZ IAS 1 and GAAP The following information was extracted from the financial records of Brown Limited at 31 March Dr Cr $ $ Accounts payable 28,668 Accounts receivable 93,480 Accumulated depreciation buildings 66,140 Accumulated depreciation plant and equipment 113,520 Bank overdraft 6,940 Buildings 317,520 Cash 1,082 Contributed equity 464,400 Income tax payable 8,050 Inventory 87,142 Investment in Bay Limited 68,000 Land 455,372 Long-term loan 309,600 Plant and equipment 206,400 Retained earnings 164,226 Revaluation surplus Land 67,452 1,228,996 1,228,996 Additional information 1. Inventory comprises 20 per cent raw materials, 30 per cent work in progress, and the rest in finished goods. 2. The directors of Brown Limited have decided to make an allowance for doubtful debts at 5 per cent of the accounts receivable balance at the reporting date. This adjustment has yet to be made. 3. Depreciation is calculated on the straight-line basis at the following rates: Plant and equipment 15 per cent per annum Buildings 5 per cent per annum. Depreciation for the current year has already been correctly recorded and included in retained earnings. 4. The investment comprises shares in Blue Limited. These shares have not been revalued to fair value. 5. The long-term loan is to be repaid on a straight-line basis over 15 years, with the first payment to be made on 31 October Interest on the loan is charged at 9 per cent per annum. The interest expense for the current year was correctly recorded and included in retained earnings. The long-term loan is secured over the company s land. 6. Income tax payable has been calculated correctly.

26 REQUIRED Use only the information that has been provided, prepare, in a format suitable for external reporting purposes, Brown Limited s Statement of Financial Position at 31 March 2018 and accompanying notes. You are NOT required to prepare an Equity Note or a Statement of Changes in Equity. Sample question 9: NZ IAS 1 and GAAP Cellini Limited is a manufacturing company with a number of different revenue streams. The following information has been extracted from the financial records for the reporting period ended 30 June Ignore GST in this question. Auditor s remuneration 98,240 Bad debts 35,700 Dr Cr $ $ Consulting revenue 63,550 Contributed equity 30 June 2018 (150,000 ordinary shares) Depreciation fixtures and fittings 60,500 Depreciation manufacturing property, plant and equipment 144,690 Directors fees 197,400 Discount on sales 14,500 Dividends paid 193, ,200 Dividend received - 39,900 Employee benefit expense 333,690 Interest paid on loan 142,800 Interest received 23,250 Loss on sale of manufacturing property, plant and equipment 38,200 Other expenses 82,450 Purchases 1,027,360 Rent paid 177,000 Rent received 264,600 Retained earnings 1 July ,454,650 Revaluation surplus Land 1 July ,600 Sales 2,635,440 Income tax expense 191,450 Net assets 2,460,210 5,197,190 5,197,190

27 Additional information 1. Included in net assets at 30 June 2018 is inventory with a closing balance of $158,950. Inventory at 1 July 2014 amounted to $138, The directors have decided to allocate those expenses that cannot be directly attributable to a cost category on the basis of floor area. The floor area covered by Cellini Limited has been allocated as follows: % Manufacturing 60 Distribution 25 Administration A debtor who owed Cellini Limited $29,400 on 30 June 2018 was declared bankrupt on 26 August Interest of $13,000 is still owed by Cellini Limited on its loan at reporting date. 5. At 30 June 2015, an amount of $30,810was still owed to employees for work undertaken. 6. Included in Other expenses is a donation amounting to $13,450 made to a not-for-profit organisation that provides funding to community education. 7. Included in net assets at 30 June 2018 is land that originally cost $712,000. On 21 May 2018, the land was revalued by Max Klump, an independent valuer. The revaluation of $771,000 was based on the market. No entry has been made to account for this transaction. 8. On 18 June 2018, Cellini Limited bought back 24,000 shares at $4.20 per share. The accountant made the following incorrect entry to account for the transaction: 18 June 2018 Dr Contributed equity 100,800 Buyback of 24,000 shares at $4.20 per share Cr Cash 100, The loss on the sale of equipment arose from the disposal of manufacturing equipment. 10. An analysis of the auditors remuneration reveals that $54,600 was for audit fees, and the balance was fees for consultation. 11. The tax expense has been correctly calculated.

28 REQUIRED For the reporting period ending 30 June 2018, prepare the following for Cellini Limited: the Statement of Comprehensive Income, classified by function, in a single statement format, together with accompanying notes in a format suitable for external reporting purposes the Statement of Changes in Equity in a format suitable for external reporting purposes. You are not required to provide supporting notes for the Statement of Changes in Equity. Sample question 10: NZ Framework On 1 October 2018, the homeware shop your friend works for decided to introduce a $50 gift card. The gift card is sold at the full price. It allows the gift card holders to redeem any numbers of the gift card when purchasing items from the shop. However no balance of the card can be exchanged for cash. So far 200 gift cards have been sold, and as of 10 October 50 gift cards were redeemed. Your friend believes that the best way to account for the sale of gift cards is as follows. 1 Oct 2018 Dr Cash Cr Sales Revenue gift cards Recognising the sales of 200 gift cards The redemption of the gift cards would be accounted for as follows. 10 Oct 2018 Dr Cost of Sales gift cards Cr Sales Revenue - homeware Recognising the redemption of 50 gift cards REQUIRED 1. Discuss whether you agree with the accounting treatment for each of the two journal entries above, using as a basis the definition and recognition criteria of the financial elements in the New Zealand equivalent to the IASB Conceptual Framework for Financial Reporting 2010 (NZ Framework). 2. What will be the implication on the accounting treatment for gift cards if the gift cards are issued with an expiry date?

29 Sample question 11: For-Profit Entities Accounting Standards Framework Your friends Yolanda and Jeremy is planning to establish a social enterprise InkPower. InkPower is not a usual company nor a charity. They are going to launch a crowd funding campaign to raise the capital for InkPower. The organisation will be registered as Limited Liability Company. Yolanda and Jeremy aimed to raise $80,000 for InkPower from the Crowdfunding campaign. As the shareholders of the company, they will also each contribute $5,000 as capital. The company will import and sell sustainably produced and fairly priced stationary. 50% of the profit will go to funding education projects and activities for school children and 50% of profit will be retained in the company to cover the operating cost and finance the future growth. Yolanda and Jeremy is concerned about the accounting and financial report responsibilities of InkPower REQUIRED: (1) Explain to Yolanda and Jeremy how the External Reporting Board Standards for For-Profit Entities Accounting Standards Framework may be relevant to InkPower. (2) Explain in particular what the following terms means in terms of the External Reporting Board Standards for For-Profit Entities Accounting Standards Framework: For-profit Public accountability Large (3) Conclude and justify whether InkPower will fit in the For-Profit Entities Accounting Standards Framework Sample question 12: For-Profit Entities Accounting Standards Framework Nelson Airport Limited is an Airport Company, which is registered under the Companies Act The shares in Nelson Airport Limited are held by both Tasman District Council (50%) and Nelson City Council (50%). Nelson Airport Limited is a for-profit entity. The company operates and manages the Nelson regional airport. The major activities are the provision of facilities for aircraft landing and servicing, and the airline and landside processing of passengers and freight to and from the aircraft. Nelson Airport Limited does not have any debt or equity instruments currently being traded in a public market nor it is in the process of issuing such instruments for trading in a public market. The Statement of Comprehensive Income of Nelson Limited are provided as follows:

30 REQUIRED: Conclude and justify how Nelson Airport should comply with the External Reporting Board Standards for For- Profit Entities Accounting Standards Framework. (Hint: Which tier does the company fit in and why? What is the financial reporting requirement for the company?) Sample question 13: For-Profit Entities Accounting Standards Framework Hallenstein Glasson Holdings Limited together with its subsidiaries (the Group ) is a retailer of men s and women s clothing in New Zealand and Australia. The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its registered office is Level 3, Broadway Newmarket, Auckland. Statutory base Hallenstein Glasson Holdings Limited is a company registered under the Companies Act The Company is also listed on the New Zealand Stock Exchange (NZX). REQUIRED: Conclude and just how Hallenstein Glasson Holdings Limited should comply with the External Reporting Board Standards for For-Profit Entities Accounting Standards Framework. (Hint: Which tier does the company fit in and why? What is the financial reporting requirement for the company?)

31 Sample question 14: For-Profit Entities Accounting Standards Framework Christchurch International Airport Limited (the company) owns and operates Christchurch International Airport. The company is owned 75% by Christchurch City Holdings Limited, a wholly owned subsidiary of Christchurch City Council, and 25% owned by the New Zealand Government. The company is a limited liability company incorporated and domiciled in New Zealand. The company operates predominantly in the business of providing airport facilities and services to airline and airport users. All operations are based at Christchurch International Airport. The company is designated as a for profit entity for financial reporting purposes. The Statement of Comprehensive Income of Nelson Limited are provided as follows: REQUIRED: Conclude and just how Christchurch International Airport Limited should comply with the External Reporting Board Standards for For-Profit Entities Accounting Standards Framework. (Hint: Which tier does the company fit in and why? What is the financial reporting requirement for the company?)

32 Sample question 15: Current issues in Accounting The following information is extracted from the NZ Post website. Refer to the following information to answer this question. REQUIRED: 1. Explain the concept of integrated reporting. 2. Discuss the purpose and intended users of the Integrated Reporting by comparing the purpose and the intended users of general purpose financial reports 3. Compare and contrast the concepts of the six capitals listed in above according to the Integrated Reporting Framework and the definition of asset of the NZ Framework.

33 Sample question 16: Current issues in Accounting The Integrated Report Framework (2013) issued by The International Integrated Reporting Council specifies the following guiding principles of preparing an Integrated Report. Meanwhile, NZ Frame (2010) specifies that the qualitative characteristics of useful financial information identify the types of information that are likely to be most useful to the existing and potential investors, lenders and other creditors for making decisions about the reporting entity on the basis of information in its financial report. If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. REQUIRED: 1. Your friend suggests that Integrated Reporting is a new generation of financial reporting. Critically evaluate this statement. 2. Compare and contrast the guiding principles of Integrated Reporting and the qualitative characteristics specified in the NZ Framework.

34 Sample Question 17 Management Accounting Concepts Perry Brothers is a new company that manufactures desks. In its first month of operation it began and completed 500 desks. The following production information has been provided: Administrative expenses $1 600 Cost per direct labour hour $15 Direct labour per desk 4 hours Direct material cost per desk $18 Factory rent $2 000 Indirect labour costs $400 Indirect material costs $220 Marketing expenses $750 REQUIRED: 1. Calculate the cost of direct labour for one desk. 2. Calculate the total overhead costs for the first month of production. 3. Calculate the total manufacturing costs for the first month of production. Sample Question 18: Job Costing Granny Jones crochets made-to-order blankets. The following is an incomplete job cost report for a "Granny Squares" blanket ordered by Megan Deal. All employees are paid the same wage rate. Date Direct materials Direct labour Overhead Type of yarn Total cost Crocheting hours Total cost Total applied 23 Jan Blue: 4 balls $ $80.00 $ Jan Brown: 2 balls $ (b) (d) 25 Jan Green: 2 balls $ $48.00 $2.70 REQUIRED: 1. What is the direct labour cost per hour? 2. What is the direct labour cost for 24 January? 3. Based on this job cost report, how is overhead being assigned to each blanket? Do you believe that the chosen cost driver is appropriate in this instance? Why or why not? 4. How much overhead should be applied on 24 January? 5. What is the total manufacturing cost for this blanket?

35 Sample Question 19: CPV Analysis and Decision Making Neil King and Company sells canisters of three mosquito repellent products: Citronella, DEET and Mean Green. The company has annual fixed costs of $ Last year, the company sold canisters of its mosquito repellent in the ratio of 1:2:2 (that is, 20% Citronella, 40% DEET and 40% Mean Green). Waller's accounting department has compiled the following data related to the three mosquito repellents: REQUIRED: Citronella DEET Mean Green Price per canister $11.00 $15.00 $17.00 Variable costs per canister $ 6.00 $12.00 $16.00 (Formulas are not provided.) 1. Calculate the total number of canisters that must be sold for the company to break even. 2. Calculate the number of canisters of Citronella, DEET and Mean Green that must be sold to breakeven. 3. Calculate the revenue for each of the products and in total at breakeven point. 4. How could Neil King and Company reduce its breakeven point? Discuss your suggestions. Sample Question 20: Budgeting Odds and Ends sell books and various other reading-related products. One of the store s most popular products is a book pillow for hard cover and soft cover books. The pillows each sell for $8.00. Originally the pillows were handmade by a local artisan. The store s owner has been impressed with the demand for the pillow and has recently begun a small manufacturing company to produce and distribute the pillows to other stores. Estimated sales for the fourth quarter (in units) are as follows: Month Sales (units) October November December Historically, the cash collection of sales has been as follows: 55 per cent of sales are collected in the month of sale, 35 per cent of sales are collected in the month following the sale and 9 per cent of sales are collected in the second month following sale. The remaining 1 per cent is never collected because customers do not pay. Each pillow requires half a metre (0.5 m) of fabric that costs, on average, $6 per metre. The company budgets to have the following raw materials inventory of fabric at the beginning of each month: Month October November December January Beginning inventory 657 metres 744 metres 912 metres 482 metres REQUIRED: 1. Calculate the budgeted sales revenue for the fourth quarter (Oct, Nov and Dec) based on the above information. 2. Calculate the cash from sales that the company expects to receive in the month of December. 3. Calculate how many pillows need to be manufactured in November. The company wants to maintain a 10 per cent inventory at the end of each month based on the next month s estimated sales.

36 4. Determine the budgeted fabric purchases for November. Sample Question 21: Management Accounting Concepts Kiwi Company's relevant range of production to units. When it produces and sells units, its average costs per unit are as follows: REQUIRED: Average Cost Direct materials... $7.00 per unit Direct labour... $4.00 per unit Variable manufacturing overhead... $1.50 per unit Fixed manufacturing overhead... $ Fixed selling expense... $ Fixed administrative expense... $ Sales commissions... $1.00 per unit Variable administrative expense... $0.50 per unit 1. What is the total direct manufacturing cost of making units? 2. What is the total indirect manufacturing cost of making units? 3. What is the total amount of period costs for selling units? 4. If units are produced and sold, what is the variable cost per unit? 5. If units are produced, what is the total amount of fixed manufacturing overhead? Sample Question 22: Job Costing Takahe Company has two manufacturing departments: Assembly and Machining. The company considers all of its manufacturing overhead costs to be fixed costs. The following estimates were made at the beginning of the year for the expected total output of the company: Estimated data Machining Assembly Total Manufacturing overhead cost $ $ $ Direct labour hours Machine hours The following data relates to one particular job completed during the year Job A200: Job A200 Machining Assembly Total Direct materials $50 $110 $160 Direct labour $45 $70 $115 Direct labour hours 2 hours 10 hours 12 hours Machine hours 7 hours 1 hour 8 hours Takahe uses predetermined departmental overhead rates with machine hours as the allocation base in Machining and direct labour hours as the allocation base in Assembly. There are 50 units in Job A200. REQUIRED: 1. Calculate the predetermined overhead rates for each department. 2. How much total manufacturing overhead cost would be applied to Job A200?

37 3. What is the unit product cost for Job A200? Sample Question 23: Cost-Volume-Profit analysis Kea Company manufactures and sells a specialised cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for 2016 is given below: $ Sales ( phones) Variable expenses Contribution margin Fixed expenses Net operating income Management is anxious to increase the company's profit and has asked for an analysis of a number of items. Formulas are not provided REQUIRED: 1. Calculate the company's breakeven point in both unit sales and dollar sales. 2. Assume that next year management wants the company to earn a profit of at least $ How many units will have to be sold to earn this target profit? 3. Assume that the sales increase by $ next year. If cost behaviour patterns remain unchanged, by how much will the company's net operating income increase? 4. Refer to the original income statement for 2016 above. In an effort to increase sales and profits, management is considering the use of a higher quality speaker in the phones. With the higher quality speaker, the variable costs would be $3 more per unit, but management could eliminate one quality inspector who is paid a salary of $ per year. The sales manager estimates that the higher quality speaker would increase annual sales by at least 20%. 5. Assuming that the higher quality speaker is used, prepare a projected contribution format income statement for next year. Sample Question 24: Budgeting Kakapo Company manufactures oak cupboards. Budgeted sales for the first four months of the year are as follows: Budgeted Sales (Units) January 90 February 120 March 80 April 60 Each cupboard requires 10 square metres of oak, at a cost of $20 per square metre. The company wants to maintain an inventory of cupboards equal to 20% of the following month's sales. At the beginning of the year 10 cupboards are on hand.

38 Assume the company maintains an inventory of oak equal to 5% of the next month's needs. At the beginning of the year, 52 square metres of oak are on hand. Inventory of oak at 31 March is estimated to be 40 square metres. REQUIRED: 1. Prepare a production budget for January and February. 2. Prepare a purchases budget, in dollars, for direct materials for January. The following budget estimates have been prepared by the Moa Company. Cash Receipts Cash Payments April $ $ May June The company likes to maintain a minimum cash balance of $ Any excess cash is invested in a money market account earning 9% compounded monthly. Interest is reinvested in the money market account. Any cash deficiencies are covered by a withdrawal from the money market account. If additional cash is needed, the company has a line of credit at 12% interest with the local bank. Interest is paid monthly. Assume a cash balance on 1 April of $ and money market account balance of $0. REQUIRED: Prepare a cash budget for April. Sample Question 25: Cost-Volume-Profit analysis Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labour; hence, there is no traceable fixed costs. Common fixed costs equal $ Parker s accountant has begun to assess the profitability of the two lines and has gathered the following data for last year: Vases Figurines Price $40 $70 Variable cost Contribution margin $10 $28 Number of units REQUIRED: 1. Determine the number of vases and the number of figurines that must be sold for the company to break-even. 2. Parker Pottery is considering upgrading its factory to improve the quality of its products. The upgrade will cost $5 260, and if it is successful, the projected sales of vases will be and figurine sales will increase to units. If Parker Pottery wants an income before tax of $15 480, how many units of each of the products must it sell?

39 Sample Question 26: Budgeting Fresh-n-Clean Ltd produces two laundry products: detergent and a powdered pre-soak. Both products are sold in 1 kg boxes. Detergent sells for $3.00 per box, and Pre-soak sells for $3.50 per box. Projected sales (in boxes) for next year are as follows: Detergent Presoak First quarter, Second quarter, Third quarter, Fourth quarter, First quarter, The sales manager believes that the projected sales are realistic and can be achieved by the company. Beginning inventory of Detergent on 1 January 2019 is expected to be boxes. The company's policy is to have 10 percent of the next quarter's sales of Detergent in ending inventory. Beginning inventory of Pre-soak on 1 January 2019 is expected to be boxes. The company's policy is to have 20 percent of the next quarter's sales of Pre-soak in ending inventory. REQUIRED: 1. Prepare a sales budget for each quarter of 2019 and for the year in total. Show sales by product and in total for each period. 2. Explain how Fresh-n-Clean Ltd should utilise this sales budget to benefit its business operation? 3. Prepare a budget showing how much of each product must be produced in the second quarter of Sample Question 27: Cost-Volume-Profit analysis Native Wood Products Ltd sells hand-made coffee tables. The shop owner has divided sales into two categories according to the type of wood used in the tables, as follows: Product type Kahikatea Rimu Sales price $1 000 $600 Cost $550 $270 Sales commission $50 $30 Seventy percent (70%) of the shop's sales are rimu tables. The shop's annual fixed costs are $ REQUIRED: 1. Calculate the unit contribution margin for each product type. 2. Calculate the weighted average contribution margin, assuming the sales mix stays the same. 3. What is the shop's breakeven sales revenue in dollars? 4. How many tables of each type must be sold in order to earn a target net profit of $99 000?