Question 1 - The regulatory environment for financial reporting
You are a member of a large accounting firm which is responsible for preparing financial reports, including statements and notes to the accounts, and for advising staff in client firms who are responsible for preparing financial reports. The firm only deals with large Australian companies listed on the Australian Stock Exchange (ASX). One of your key tasks is to summarise the changes and developments in the financial reporting environment in a newsletter published quarterly.
Required: Prepare a 2 page newsletter that identifies and summarises developments and changes in the financial reporting environment for the quarter from 1 May to 31 July 2016.
Question 2 - Preparation of a statement of financial position and statement of profit or loss and other comprehensive income
The summarised trial balance of Swish Ltd, a clothing retailer, includes the following accounts at 30 June 2016:
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DR ($)
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CR ($)
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Sales revenue
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3,245,000
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Interest revenue
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9,000
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Rental revenue
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73,000
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Changes in clothing inventories
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25,000
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Purchases of clothing inventories
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1,020,000
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Administrative salaries
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168,000
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Advertising expense
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38,000
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Amortisation expense - patent
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5,000
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Annual leave expense - administrative staff
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2,000
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Annual leave expense- sales staff
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4,000
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Depreciation - administration office equipment
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8,000
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Depreciation - shop fittings
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42,000
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Depreciation - vehicles
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6,000
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Delivery costs - freight out
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21,000
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Doubtful debts expense
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63,000
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Electricity expense - administration office
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4,000
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Electricity expense - retail store
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17,000
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Goodwill impairment loss
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20,000
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Interest expense
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19,000
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Long service leave expense - administrative staff
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2,000
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Long service leave expense - sales staff
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10,000
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Promotion expenses
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26,000
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Rent expense - administration office
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18,000
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Rent expense - retail store
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189,000
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Sales staff salaries
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285,000
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Shipping supplies
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12,000
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Sundry expenses
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4,000
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Income tax expense
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450,000
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Gain on revaluation of delivery vehicles ($10,000 less $3,000 tax)
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7,000
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Cash on hand
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17,000
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Accounts receivable
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545,000
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Allowance for doubtful debts
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83,000
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Inventories
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98,000
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Prepaid rent - retail store
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20,000
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Investment property
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954,000
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Deferred tax assets
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23,000
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Patent
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50,000
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Accumulated amortisation - patent
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10,000
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Trademark - at cost
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35,000
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Goodwill
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50,000
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Accumulated impairment losses - goodwill
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20,000
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Administration office equipment - at cost
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46,000
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Accumulated depreciation - office equipment
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22,000
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Shop fittings - at cost
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614,000
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Accumulated depreciation - sales equipment
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96,000
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Vehicles - delivery vehicles - at fair value
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70,000
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Accumulated depreciation - delivery vehicles
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3,000
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Accounts payable
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63,000
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Current tax liability
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312,000
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Bank loan
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200,000
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Provision for annual leave
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37,000
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Provision for long service leave
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18,000
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Deferred tax liabilities
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3,000
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Share capital - ordinary fully paid shares
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500,000
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Retained earnings at 1 July 2015
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272,000
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Asset revaluation surplus
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7,000
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4,980,000
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4,980,000
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Additional information:
- All assets other than accounts receivable, cash, prepayments and inventories are non-current. All liabilities other than accounts payable, provision balances listed below and current tax liability are non-current.
- Provision for annual leave includes $9,000 payable within 1 year.
- Provision for long service leave includes $5,000 payable within 1 year.
- On 1 January 2016, the vehicles were revalued from $60,000 to $70,000. The gain, which has been included in the trial balance above, is to be recognised in other comprehensive income in accordance with AASB 116 paragraph 39.
- Swish Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and presents an analysis of expenses by nature on the statement.
- In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Swish Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.
Required: Prepare the statement of financial position and statement of profit or loss and other comprehensive income of Swish Ltd for the year ended 30 June 2016 in accordance with AASB 101, using the line items that a listed company is likely to use. Show all workings. Notes and comparative figures are not required.