Background
To,
Chairperson
International Standard Accounting Board
30 Cannon Street, London- EC4M 6XH, United Kingdom
Date: 15th September, 2017
Subject: Recommendation and guidance for the improvement of the effectiveness of the communication as well as the information in the fiscal report
Sir,
I intend to make some plans as an investor, concerning the proposition of the IASB, regarding the effectiveness of the information that has been collected in the fiscal report. Undertaking the investments in the two different organisations, that are listed on the ASX which comprise the Westpac and also ANZ have been considered by me. In relation to this, the review and the comparison of the annual report of both the companies at present times have been performed by me. The preparation of the fiscal report is often considered to be a difficult task by the individuals who prepare it. It is also felt that, the information have not been appropriately depicted. There has been somewhat betterment in the nature of the financial reporting even though there exist opportunities for making further improvement. During the proper study of the report I have been able to discover that certain areas can be improved for better presentation as well as for the disclosure of the significant information. The creation of the good link of information in the report is much beyond the explanation of the linkage nature and the highlight of the connection of place of related disclosure.
Sometimes it happens that the investors do not understand the important information which is contained in the annual report. This occurs due to the poor presentation of the fiscal data. It is essential for me, to ascertain the need for making the suitable communication of the information after the annual report of the ANZ bank as well as Westpac. Thus it can be said that sometimes there are certain differences which exist in the information presentation of both the organisations. It has been shared that the preparation of the fiscal report as well as the disclosure of information, there is a requirement of standardisation. I have also familiarised myself with the set of seven rules which are stated in the section 2 of the discussion paper, that involves the clear as well as comparable format which are free from the unnecessary duplication and also organised for highlighting the important matter. It can be said that after the proper analysis of the annual report of both the companies which complies with very few of the principles and also lacks the majority of the parts (Tokar, 2015).
Since the banks are financial institutions, they are required to make the clear disclosure of the risks of liquidity as well as the credit risks. The reputed as well as renowned banks, should disclose the information properly. It should be done in a way that the a clear picture is given of the financial health at a glance which is obtained by the adoption of the principles of effectiveness that are lacking. While Westpac performs segmental analysis with consistently defining segments there is no segmental analysis done by the ANZ banks. The strengthening of the banking industry regulation requires the Basel incorporation. It is nothing but an inclusive set of reformative measures. It has been studied by me that there are separate disclosures of requirements of Basel in the fiscal report. Little information connected to the credit as well as the liquidity risks was mentioned in the notes of the economic statements. Regarding the situation of Westpac, there have been suitable disclosures of the requirements as well as the information regarding Basel and the risk information of the banking industry. Westpac has proper information about Tiers, however the annual reports of the ANZ bank do not have any such information. The divisional performance of the Westpac has been properly presented in the annual report in comparison to the bank. The specific areas which require consideration are not disclosed.
Principles of Effective Communication
It is good for the economic institutions to utilize graphical representations for the presentation of the fiscal data in their annual reports. This are also useful for helping investors in the performance analysis. Utilisation of the graphs would be the best despite the use of any form of the narrative disclosure. This is because; use of any sort of narrative disclosure causes the information to get redundant. After the analysis of annual report, consideration of all the facts related to the disclosure, requires considerable improvement. The most of the IASB required to put to the most to work can make it comparable as well as specific with respect to entities.
Organisations should incorporate the information regarding the forward looking information as well as the quantitative targets for the measurement of the performance against a set of strategic objectives. Thus to ensure the communication target if the organisations sometimes consider the combinations of investors. Core product range is also helpful as also the development of the particular segment. In addition to this the fiscal information presented and other relevant information can also make the necessary comparison between the different times of reporting that should not compromise on the quality of the decision making (Baxter, 2014).
The effectiveness of the communication of the information can be improved by use of the proper formatting which is based on the perception of several stakeholders. Numerous reports have been published by the financial institutions based on the use of the graphs as well as the financial support.
I can recommend the effective use of formatting, for the effective communication of information. The investors would not face any problems in the effective communication of information if they can analyse as well as make the proper comparison of the data. This is related to the financial performance of the different time periods.
Finally I would like to recommend that, as an investor some principles of aiming the proper communication should be incorporated by the organisations. Only after the proper analysis of the economic report of both the companies, some of the most effective principle which should be incorporated as the entity specificity as well as the utilisation of the proper formatting.
|
In the books of Harriette Ltd. |
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|
Journal Entries |
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|
|
|
Dr. |
Cr. |
|
Particulars |
Amount |
Amount |
|
|
Cash trust A/c. |
Dr. |
$8,200,000 |
|
|
To. |
Preference Share Application A/c. |
$1,600,000 |
|
|
To. |
Ordinary Share Application A/c. |
$6,600,000 |
|
|
(Being application money received for 2,000,000 ordinary shares and 1,000,000 preference shares) |
|||
|
Preference Share Application A/c. |
Dr. |
$1,600,000 |
|
|
To. |
Preference Share Capital A/c. |
$1,600,000 |
|
|
(Being application money received for pf. Shares transferred to Pf. Share capital) |
|||
|
Ordinary Share Application A/c. |
Dr. |
$6,600,000 |
|
|
To. |
Ordinary Share Capital A/c. |
$6,000,000 |
|
|
To. |
Ordinary Share Allotment A/c. |
$600,000 |
|
|
(Being application money received for ordinary share capital transferred to ordinary share capital and excess amount adjusted with due allotment) |
|||
|
Ordinary Share Allotment A/c. |
Dr. |
$3,000,000 |
|
|
To. |
Ordinary Share Capital A/c. |
$3,000,000 |
|
|
(Being allotment money due on alloted shares) |
|||
|
Cash trust A/c. |
Dr. |
$2,400,000 |
|
|
To. |
Ordinary Share Allotment A/c. |
$2,400,000 |
|
|
(Being due allotment money received) |
|||
|
Ordinary Share Call A/c. |
Dr. |
$1,000,000 |
|
|
To. |
Ordinary Share Capital A/c. |
$1,000,000 |
|
|
(Being call money due on alloted shares) |
|||
|
Cash trust A/c. |
Dr. |
$975,000 |
|
|
Calls-in-Arrear A/c. |
Dr. |
$25,000 |
|
|
To. |
Ordinary Share Call A/c. |
$1,000,000 |
|
|
(Being due call money received except for 50000 shares) |
|||
|
Ordinary Share Capital A/c. |
Dr. |
$250,000 |
|
|
To. |
Calls-in-Arrear A/c. |
$25,000 |
|
|
To. |
Ordinary Share Forfeiture A/c. |
$225,000 |
|
|
(Being the 50000 shares, for which call money is due, forfeited accordingly) |
|||
|
Cash trust A/c. |
Dr. |
$210,000 |
|
|
Ordinary Share Forfeiture A/c. |
Dr. |
$40,000 |
|
|
To. |
Ordinary Share Capital A/c. |
$250,000 |
|
|
(Being the forfeited shares reissued for $4.20 per shares) |
|||
|
Cost of Forfeiture & Reissue A/c. |
Dr. |
$7,500 |
|
|
To. |
Cash trust A/c. |
$7,500 |
|
|
(Being cost of forfeiture and reissue of shares paid) |
|||
|
Ordinary Share Forfeiture A/c. |
Dr. |
$185,000 |
|
|
To. |
Cost of Forfeiture & Reissue A/c. |
$7,500 |
|
|
To. |
Capital Reserve A/c. |
$177,500 |
|
|
(Being the balance of share forfeiture a/c. after adjusting with cost of forfeiture and reissue transferred to capital reserve) |
Requirement i:
|
Worksheet for Current Tax Liability/(Refundable): |
||
|
Particulars |
Amount |
Amount |
|
Accounting profit before tax |
$66,000 |
|
|
Add: |
||
|
Doubtful Debt Expense |
$5,000 |
|
|
Annual Leave |
$23,000 |
|
|
Warranty Expense |
$12,000 |
|
|
Depreciation Expense for accounting purpose |
$60,000 |
|
|
Insurance |
$40,000 |
$140,000 |
|
|
$206,000 |
|
|
Less: |
||
|
Government Grant |
$20,000 |
|
|
Bad debt expense |
$1,000 |
|
|
Annual Leave Paid |
$3,000 |
|
|
Insurance Paid |
$50,000 |
|
|
Warranty Expense Paid |
$2,000 |
|
|
Depreciation Expense for Tax Purpose |
$50,000 |
$126,000 |
|
Taxable income |
$80,000 |
|
|
Tax on taxable income @30% |
$24,000 |
|
|
Less: 30% Tax paid on Sales Revenue |
$205,800 |
|
|
Income Tax Refundable |
($181,800) |
|
Deferred Tax Worksheet: |
||||
|
Particulars |
Carrying Amount |
Tax Base |
Taxable Temp’y Diffs |
Deductible Temp’y Diffs |
|
|
$ |
$ |
$ |
$ |
|
Assets |
||||
|
Cash |
$10,000 |
$10,000 |
||
|
Trade Receivables |
$125,000 |
$125,000 |
||
|
Allowance for Doubtful Debts |
($4,000) |
$0 |
$4,000 |
|
|
Inventories |
$60,000 |
$60,000 |
||
|
Prepaid Insurance |
$10,000 |
$10,000 |
||
|
Goodwill |
$20,000 |
$20,000 |
||
|
Equipment |
$300,000 |
$300,000 |
||
|
Accumulated Depreciation |
($60,000) |
($50,000) |
$10,000 |
|
|
Liabilities |
||||
|
Trade Payables |
$35,000 |
$35,000 |
||
|
Provision for Warranties |
$10,000 |
$10,000 |
||
|
Provision for Annual Leave |
$20,000 |
$20,000 |
||
|
Loan Payable |
$90,000 |
$90,000 |
||
|
Total Temporary differences |
$10,000 |
$44,000 |
||
|
Deferred tax liability (30%) |
$3,000 |
|||
|
Deferred tax asset (30%) |
$13,200 |
|
Dr. |
Cr. |
|||
|
Date |
Particulars |
Amount |
Amount |
|
|
30/06/2017 |
Income Tax Expense A/c. |
Dr. |
$24,000 |
|
|
|
Income Tax Refundable A/c. |
Dr. |
$181,800 |
|
|
|
To, |
Advance Tax Paid A/c. |
$205,800 |
|
|
|
(Being Income tax expenses adjusted with advance tax paid and income tax refundable recorded) |
|||
|
|
$13,200 |
|||
|
|
Deferred Tax Assets A/c. |
Dr. |
$3,000 |
|
|
|
To, |
Deferred Tax Liability A/c. |
$10,200 |
|
|
|
To, |
Income Tax Expense A/c. |
||
|
|
(Being deferred tax assets and deferred tax liabilities recorded) |
|||
|
|
Profit & loss A/c. |
$21,000 |
||
|
|
To, |
Income Tax Expense A/c. |
$21,000 |
|
|
|
(Being income tax expense transferred to P/L A/c.) |
|
Worksheet for Current Tax Liability/(Refundable): |
||
|
Particulars |
Amount |
Amount |
|
Accounting profit before tax |
($44,000) |
|
|
Add: |
||
|
Doubtful Debt Expense |
$5,000 |
|
|
Annual Leave |
$23,000 |
|
|
Warranty Expense |
$12,000 |
|
|
Depreciation Expense for accounting purpose |
$60,000 |
|
|
Insurance |
$40,000 |
$140,000 |
|
|
$96,000 |
|
|
Less: |
||
|
Government Grant |
$20,000 |
|
|
Bad debt expense |
$1,000 |
|
|
Annual Leave Paid |
$3,000 |
|
|
Insurance Paid |
$50,000 |
|
|
Warranty Expense Paid |
$2,000 |
|
|
Depreciation Expense for Tax Purpose |
$50,000 |
$126,000 |
|
Taxable income |
($30,000) |
|
|
Tax on taxable income @30% |
$0 |
|
|
Less: 30% Tax paid on Sales Revenue |
$172,800 |
|
|
Income Tax Refundable |
($172,800) |
|
Deferred Tax Worksheet: |
||||
|
Particulars |
Carrying Amount |
Tax Base |
Taxable Temp’y Diffs |
Deductible Temp’y Diffs |
|
|
$ |
$ |
$ |
$ |
|
Assets |
||||
|
Cash |
$10,000 |
$10,000 |
||
|
Trade Receivables |
$125,000 |
$125,000 |
||
|
Allowance for Doubtful Debts |
($4,000) |
$0 |
$4,000 |
|
|
Inventories |
$60,000 |
$60,000 |
||
|
Prepaid Insurance |
$10,000 |
$0 |
$10,000 |
|
|
Goodwill |
$20,000 |
$20,000 |
||
|
Equipment (Net) |
$300,000 |
$300,000 |
||
|
Accumulated Depreciation |
($60,000) |
($50,000) |
$10,000 |
|
|
Liabilities |
||||
|
Trade Payables |
$35,000 |
$35,000 |
||
|
Provision for Warranties |
$10,000 |
$0 |
$10,000 |
|
|
Provision for Annual Leave |
$20,000 |
$0 |
$20,000 |
|
|
Loan Payable |
$90,000 |
$90,000 |
||
|
Total Temporary differences |
|
|
$10,000 |
$44,000 |
|
Deferred tax liability (30%) |
|
|
$3,000 |
|
|
Deferred tax asset (30%) |
|
|
|
$13,200 |
Workings:
|
|
Base |
|
|
Particulars |
Accounting |
Tax |
|
Equipment-at Cost |
$300,000 |
$300,000 |
|
Useful Life (in years) |
5 |
6 |
|
Depreciation Expenses p.a. |
$60,000 |
$50,000 |
|
Period of Utilization (in years) |
1 |
1 |
|
Accumulated Depreciation |
$60,000 |
$50,000 |
|
Equipment (net Value) |
$240,000 |
$250,000 |
|
Particulars |
Amount |
|
|
Doubtful Debt Expense |
$5,000 |
|
|
Less: Prov. For Doubtful debt |
$4,000 |
|
|
Bad Debt Expense |
$1,000 |
|
|
Annual Leave Expense |
$23,000 |
|
|
Less: Prov. For Annual Leave |
$20,000 |
|
|
Annual Leave Paid |
$3,000 |
|
|
Warranty Expense |
$12,000 |
|
|
Less: Prov. For Warranty |
$10,000 |
|
|
Warranty Expense Paid |
$2,000 |
|
|
Insurance Expense |
$40,000 |
|
|
Add: Prepaid Insurance |
$10,000 |
|
|
Insurance Paid |
$50,000 |
|
In the books of Snowy Ltd. |
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|
Journal Entries |
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|
Dr. |
Cr |
|||
|
Date |
Particulars |
Amount |
Amount |
|
|
1/7/2015 |
Plant-A A/c. |
$150,000 |
||
|
|
Plant-B A/c. |
$250,000 |
||
|
|
Bank A/c. |
$400,000 |
||
|
|
(Being Plant A and Plant B acquired for cash) |
|||
|
30/6/2016 |
Depreciation Expense A/c. |
65000 |
||
|
|
Accum. Dep. – Plant A A/c. |
15000 |
||
|
|
Accum. Dep. – Plant B A/c. |
50000 |
||
|
|
(Being depreciation charged on Plant A & Plant B) |
|||
|
|
Accum. Dep. – Plant A A/c. |
15000 |
||
|
|
Loss on Revaluation A/c. |
$15,000 |
||
|
|
Plant A A/c. |
$30,000 |
||
|
|
(Being Plant A revalued at fair value and loss on revaluation recorded) |
|||
|
|
Accum. Dep. – Plant B A/c. |
50000 |
||
|
|
Gain on Revaluation A/c. |
$35,000 |
||
|
|
Plant B A/c. |
$15,000 |
||
|
|
(Being Plant B revalued at fair value and gain on revaluation recorded) |
|||
|
|
Gain on Revaluation A/c. |
$35,000 |
||
|
|
Loss on Revaluation A/c. |
15000 |
||
|
|
Asset Revaluation Reserve A/c. |
$20,000 |
||
|
|
(Being the gain and loss of revaluation transferred to asset revaluation reserve) |
|||
|
|
Deferred Tax Assets A/c. |
$10,500 |
||
|
|
Deferred Tax Liabilities A/c. |
$4,500 |
||
|
|
Income Tax Expense A/c. |
$6,000 |
||
|
|
(Being deferred tax recorded for the asset revaluation) |
|||
|
30/06/2017 |
Depreciation Expense A/c. |
72083 |
||
|
|
Accum. Dep. – Plant A A/c. |
13333 |
||
|
|
Accum. Dep. – Plant B A/c. |
58750 |
||
|
|
(Being depreciation charged on Plant A & Plant B) |
|||
|
|
Accum. Dep. – Plant A A/c. |
13333 |
||
|
|
Gain on Revaluation A/c. |
$8,333 |
||
|
|
Plant A A/c. |
$5,000 |
||
|
|
(Being Plant A revalued at fair value and gain on revaluation recorded) |
|||
|
|
Accum. Dep. – Plant B A/c. |
58750 |
||
|
|
Loss on Revaluation A/c. |
$46,250 |
||
|
|
Plant B A/c. |
$105,000 |
||
|
|
(Being Plant B revalued at fair value and loss on revaluation recorded) |
|||
|
|
Gain on Revaluation A/c. |
$8,333 |
||
|
|
Asset Revaluation Reserve A/c. |
$37,917 |
||
|
|
Loss on Revaluation A/c. |
$46,250 |
||
|
|
(Being the gain and loss of revaluation transferred to asset revaluation reserve) |
|||
|
|
Deferred Tax Assets A/c. |
$2,500 |
||
|
|
Income Tax Expense A/c. |
$11,375 |
||
|
|
Deferred Tax Liabilities A/c. |
$13,875 |
||
|
|
(Being deferred tax recorded for the asset revaluation) |
Workings:
|
Computation of Revaluation Gain/(Loss) & Deferred Tax: |
||||||||
|
Year |
Opening Balance |
Estimated Life (in years) |
Residual Value |
Depreciation p.a. |
Closing Value |
Fair Value |
Revaluation Gain/(Loss) |
Deferred Tax Assets/ (Liabilities) |
|
|
A |
B |
C |
D=(A-C)/B |
E=A-D |
F |
G=F-E |
H=Gx30% |
|
Plant A: |
||||||||
|
2015-16 |
$150,000 |
10 |
$0 |
15000 |
$135,000 |
$120,000 |
($15,000) |
($4,500) |
|
2016-17 |
$120,000 |
9 |
$0 |
13333 |
$106,667 |
$115,000 |
$8,333 |
$2,500 |
|
Plant B: |
||||||||
|
2015-16 |
$250,000 |
5 |
$0 |
50000 |
$200,000 |
$235,000 |
$35,000 |
$10,500 |
|
2016-17 |
$235,000 |
4 |
$0 |
58750 |
$176,250 |
$130,000 |
($46,250) |
($13,875) |
Answer to Question 5:
|
Calculation of Impairment Loss: |
|
|
|
|
|
Particulars |
Amount |
|||
|
|
||||
|
Fair Value,less, Cost to Sell |
$820,000 |
|||
|
Value in Use |
$900,000 |
|||
|
|
||||
|
Recoverable Amount |
$900,000 |
|||
|
(Higher of Fair Value & Value in use) |
||||
|
Less: Carrying Amount of CGU |
$1,055,000 |
|||
|
|
||||
|
Total Impairment Gain/(Loss) |
($155,000) |
|||
|
Allocation of Specified Impairment Loss: |
||||
|
Particulars |
Carrying Amount |
Fair Value |
Impairment Loss |
|
|
Total Impairment Loss |
$155,000 |
|||
|
Less: |
||||
|
Cash |
$32,000 |
$32,000 |
$0 |
|
|
Land |
$600,000 |
$520,000 |
$80,000 |
|
|
Inventory |
$5,000 |
$5,000 |
$0 |
|
|
Accounts Receivable |
$13,000 |
$13,000 |
$0 |
|
|
Patent |
$60,000 |
$50,000 |
$10,000 |
|
|
Goodwill |
$15,000 |
$0 |
$15,000 |
|
|
Balance Impairment Loss |
$50,000 |
|||
|
Impairment Loss Allocation as per Weightage: |
||||
|
Particulars |
Carrying Amount |
Net Carrying Amount |
Weightage |
Impairment Loss |
|
Balance Impairment Loss |
$50,000 |
|||
|
Motor Vehicle |
$300,000 |
|||
|
Less: Accum. Depreciation |
($120,000) |
$180,000 |
55% |
$27,273 |
|
Plant & Equipment |
$200,000 |
|||
|
Less: Accum. Depreciation |
($50,000) |
$150,000 |
45% |
$22,727 |
|
Total |
$330,000 |
$330,000 |
100% |
$50,000 |
|
In the books of Blizzard Ltd. |
||||
|
Journal Entries |
||||
|
|
|
Dr. |
Cr. |
|
|
Date |
Particulars |
Amount |
Amount |
|
|
30/06/2017 |
Impairment Loss A/c. |
$155,000 |
||
|
|
Land A/c. |
$80,000 |
||
|
|
Patent A/c. |
$10,000 |
||
|
|
Goodwill A/c. |
$15,000 |
||
|
|
Motor Vehicle A/c. |
$27,273 |
||
|
|
Plant & Equipment A/c. |
$22,727 |
||
|
|
(Being assets under the specific cash generating unit impaired) |
|||
|
|
Profit & Loss A/c. |
$155,000 |
||
|
|
Impairment Loss A/c. |
$155,000 |
||
|
|
(Being impairment loss transferred to P/L A/c.) |
Reference & Bibliography:
Baxter, W. T. (2014). Accounting theory (Vol. 3). Routledge
Bonin, H. (2013). Generational accounting: theory and application. Springer Science & Business Media
Burc?, V., & Cotle?, D. (2014). Considerations on IASB Recent Issued Standards.
Craig, D., & Michaela, R. (2014). Financial Accounting Theory.
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