Statement of financial position

Question 1

what is statement of financial position?

Answer 1

• info about entity’s FP
• historical statement
• basis for: * evaluating business such as structure; and * computing rates of return

Question 2

How are assets and liabilities classified?

Answer 2

according to their function in operations of entity concerned and their liquidity

Question 3

The criteria for classifying liabilities as current or non-current ?

Answer 3

are based solely on the conditions existing at the end of the reporting period.

Question 4

The current/non-current classification is ordinarily considered to be more relevant when an entity

Answer 4

has identifiable operating cycle.

Question 5

Paragraph 78 of AASB 101/IAS 1 explains that subclassifications of line items in the statement of financial position are also dependent on

Answer 5

the size, nature and function of the amounts involved.

Question 6

Limitations of the statement of financial position

Answer 6

• the optional measurement of certain assets at historical costs rather than current value (fair value)
• mandatory omission of intangible self-generated assets from statement
• aggregation of amounts measure inconsistently

Question 7

what are the main minimum line items?

Answer 7

Cash and cash equivalents
Property, plant and equipment
Financial assets
Investments accounted for using the equity method
Inventories
Trade and other receivables
Trade and other payables
Provisions
Financial liabilities
Liabilities and assets for current tax
Deferred tax assets and deferred tax liabilities

Question 8

example of further sub-classification?

Answer 8

Inventories must be broken down into sub-classifications, ie raw material, work in progress (WIP) and finished goods;
PPE must be disaggregated into classes, ie land, building, plant & equipment.

Further sub-classifications may be required due to size, nature and function of the amounts involved – e.g. provisions

Question 9

Purpose of Notes?

Answer 9

enhance the understandability of all statements through further disclosures.
As far as practicable, each item in these statements is cross-referenced to any related information in the notes (AASB 101 para 113).

Question 10

The following information must be disclosed in the notes (AASB 101 para 112):

Answer 10

• basis of preparation of financial statement and specific accounting policies
• info required by Australian Accounting Standards
• other info not presented elsewhere but relevant

Question 11

Director’s declaration which act and section?

Answer 11

Corporations Act (2001) s295 (4)

Question 12

The Corporations Act (2001) s295 (4) requires a directors’ declaration to be disclosed in the notes stating whether, in the directors’ opinion:

Answer 12

• whether company is solvent
• whether statement/note are in accordance with Corporations Act
• statement of compliance with IFRSs

Question 13

what is accounting policy?

Answer 13

: specific principles, rules etc. used in preparing the financial statements: e.g. policy on revaluation of property, plant and equipment.

Question 14

What is accting estimate?

Answer 14

judgement applied in determining the carrying amount of the asset such as estimate of the useful life of an asset.

Question 15

what is error?

Answer 15

Omission or misstatement in the financial statements through mathematical mistakes, mistake in applying accounting policy, oversight or fraud

Question 16

how are changes and errors handled?

Answer 16

Retrospectively = changes in accounting policy and errors

Prospectively = changes in accounting estimates

Question 17

What is included in accounting policies summary?

Answer 17

the measurement bases used in preparing the financial statements; and
the other accounting policies used that are relevant to an understanding of the financial statements.

Question 18

what must be disclosed in accounting policy?

Answer 18

Any judgements made by management when applying the entity’s accounting policies that have the most significant effects on amounts recognised in the financial statements must also be disclosed

Question 19

how to choose accounting policy?

Answer 19

There is criteria set out - cases management must use their judgement to develop and apply a policy that results in information that is both relevant and reliable for users.

Question 20

AASB 108: Selecting and applying accounting policies : Hierarchy?

Answer 20

sets out a “hierarchy” of information sources to be used by management when selecting/applying policies as follows:
1/ Requirements and guidance in standards and interpretations that deal with similar or related issues.
2/ Definitions, recognition and measurement criteria in the Framework.
3/ Recent compatible pronouncements of other standard-setting bodies that use a similar conceptual framework.

Question 21

when can policies be changed?

Answer 21

1. change required by standard/interpretation
2. the change provide reliable and more relevant info
   detailed disclosure required

Question 22

: Changing accounting estimates

Answer 22

Accounting estimates are regularly changed as new information arises.
Changes in accounting estimates require prospective application.

EXAMPLE
The useful life assessment of non-current assets change due to technological advancements – ie the actual useful life is shorter than the original estimate of useful life.

Question 23

Sources of estimation uncertainty

Answer 23

An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty that havea significant risk of resulting in a material adjustmenttothe carrying amountsof assets and liabilities within the nextfinancial year (AASB 101 para.125).

Question 24

where source of estimation uncertainty, notes include:

Answer 24

• nature
• CA at reporting date
  e. g. future interest rate

Question 25

what are some other disclosures required?

Answer 25

• name of entity and any change in name

- whether statement cover individual entity or group of entities etc.

Question 26

AASB 110 recognises two types of ‘after the end of reporting period events’:
?

Answer 26

Adjusting events – events that provide evidence of conditions existing at the balance date;
Non-adjusting events – events that are indicative of conditions that arose after the balance date.

Question 27

Examples of adjusting events:

Answer 27

Receipt of information indicating that an asset was impaired as at the end of reporting period:
eg, a customer goes into liquidation, meaning that any receivable owing from the customer at end of reporting period is uncollectible.

Question 28

AASB 110: Events after the reporting period – non-adjusting events ?

Answer 28

AASB 110 does not require an entity to make any adjustments to the financial statements in relation to non-adjusting events, however does require note disclosure outlining:
- the nature of the event; and
- an estimate of the financial effect.
E.g. major business combination after end of reporting period