Financial Accounting ACC/ACF Semester 1, Comprehensive Notes

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1 Financial Accounting ACC/ACF 2100 Semester 1, 2018 Comprehensive Notes

2 UNIT SCHEDULE REGULATION AND FINANCING COMPANY OPERATIONS CASH FLOW STATEMENTS ACCOUNTING FOR INCOME TAX PROPERTY, PLANT AND EQUIPMENT IMPAIRMENT OF ASSETS BUSINESS COMBINATIONS CONSOLIDATION EQUITY ACCOUNTING

3 ACC/ACF2100 FINANCIAL ACCOUNTING IN-SEMESTER PRACTICE TEST: SOLUTION Question March 31 Cash Trust Dr Application Cr (Cash received on application: 1.3m sh x $3) April 1 Application ( sh x $3) Dr Allotment ( sh x $3) Dr Share Capital Cr (Allotment of shares) Application Dr Allotment Cr (Offset surplus application money) Cash Dr Cash Trust Cr (Transfer of trust funds) April 20 Cash Dr Allotment Cr (Receipt of allotment money) Share Capital (share issue costs) Dr Cash Cr (Payment of share issue costs) June 15 Cash Dr Share Capital Cr (Private placement of sh at $5.80) June 30 Dividend declared (RE) Dr Dividend payable Cr (Declaration of final dividend: 15c x 1.42m sh) July 21 Dividend payable Dr Cash Cr (Payment of final dividend) 1 ACC/ACF2100 Financial Accounting Practice Test Solution

4 OUTOFSIGHT LTD Statement of Cash Flows for the year ended 30 June 2017 Cash flows from operating activities Cash receipts from customers $ Cash paid to suppliers and employees ( ) Cash generated from operations Income tax paid (3 200) Net cash from operating activities $(1 000) Cash flows from investing activities Payment for vehicle (14 000) Payment for office furniture (2 400) Proceeds from sale of vehicle Net cash used in investing activities (13 400) Cash flows from financing activities Proceeds from issue of shares Dividends paid (8 000) Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ Note 1: Cash and cash equivalents consist of cash on hand, balances with banks, and investments in money market instruments. Cash and cash equivalents included in the statement of cash flows comprise the following amounts included in the statement of financial position: Cash on hand $ 400 $ 200 Cash balances with banks $ $ Short-term investments bank bills Cash and cash equivalents $ $ Note 2: Reconciliation of Net Cash from Operating Activities with Profit Profit $5 800 Depreciation Gain on sale of vehicle (600) Change in assets and liabilities Increase in allowance for doubtful debts Increase in current tax liability Increase in trade debtors (24 440) Decrease in inventories Increase in trade creditors Net cash from operating activities $(1 000) 5

5 Entities are required to conduct impairment tests to ensure their assets are not overstated An impairment loss results when Carrying Amount (CA) > Recoverable Amount (RA) Recovery can be from: 1. Disposal of the asset; or 2. Future use of the asset Not all assets require this test exclusions include: o Inventories o Deferred tax assets (DTAs) o Assets held for resale o The specific requirements in relation to these assets are covered in the AASBs that deal with these balances When to Undertake an Impairment Test For most assets it is not necessary to conduct impairment tests every year Assets must be tested for impairment when there is an indication (or evidence) of impairment The following assets must be tested annually for impairment, as they are more likely to be overstated: o Intangibles with indefinite useful lives 26

Step 1: Acquisition Analysis Acquisition Analysis: Compares the cost of acquisition with the fair value of identifiable net assets and contingent liabilities (FVINA) that exist at acquisition to

6 Step 1: Acquisition Analysis Acquisition Analysis: Compares the cost of acquisition with the fair value of identifiable net assets and contingent liabilities (FVINA) that exist at acquisition to determine whether there is: Recall: o Goodwill on acquisition (where Cost > FVINA) o Gain on bargain purchase (where Cost < FVINA) Goodwill: An asset representing economic benefits from other assets acquired in a business combination that could not be individually identified or separately recognised in the combination. Net Assets = Assets Liabilities = Shareholders Equity o FVINA includes: All identifiable assets and liabilities of the subsidiary FV of any contingent liabilities the acquiree may have o Contingent liabilities are not recognised in the subsidiary's balance sheet Rather, they are recorded by way of note disclosure only AASB 3 requires them to be recognised on the acquisition of another business FVINA is commonly determined with reference to the equity balances of the subsidiary, rather than the individual asset and liability balances Note: Parent has no previously held equity interest in the subsidiary 42

Contents Unit 2 Presentation of financial statements... 3

Contents Unit 2 Presentation of financial statements... 3 Preparing a statement of cash flows... 3 Preparing the reconciliation of operating cash flows... 4 Unit 4 Income taxes... 5 Calculating the current