AASB requirements for corporate accounting

Discuss about the Corporate Accounting for Financial Year Ending.

Introduction

The following paper is a case study of a company named Black Hole Ltd. The study will be based on the comprehensive know- how of corporate accounting. It consists of preparation of final accounts of the company for the year ending June 30, 2018. For this, statement of profit & loss and other comprehensive income will be presented. After that, statement of financial position and statement of equity will also be adjoined. All the final accounts will be based on the standards and requirements given by AASB 101 (Australian Accounting Standards Board).

Australian Accounting Standards Board gives prescribed rules and regulations regarding presentation of final accounts of a company. It gives a standard format according to which all the statements of a company’s final position at the end of each financial year should be presented. This ensures that accounts of a company for this year are comparable with those of previous year’s accounts. Not only this, availability of common standards for all the companies also help in comparing books of accounts of two different countries (Rahman, 2013).

There is a list of mandatory requirements along with various sections that are asked by the Australian Accounting Standards Board in context of corporate accounting. Few of them that will be used in preparation of final accounts are discussed below.

First rule is about headings of the statements of final accounts. According to paragraph 51, 99 and 103 of Australian Accounting Standards Board, companies should give an appropriate heading for each statement which must comprise the name of the company, name of the type of statement and the year to which that statement belongs.

In this paper, it is required that expenses must be classified by function. For example, administration overheads, selling and distribution overheads, operating overheads, etc. According to paragraph 104 of Australian Accounting Standards Board, if a company decides to follow this, then it has to present additional details including nature of expenses, depreciation/ amortisation overheads, employees’ benefits overheads, etc.

(Bennett, Bradbury, & Prangnell, 2006)

Besides above stated rules and requirements, references related to AASB 101 are given side by side (Deegan, 2012).

BLACK HOLE LTD.

Statement of profit & loss and other comprehensive income

for the year ended June 30, 2018

Working notes:

Other income-

1. Administration expenses-

BLACK HOLE LTD.

Statement of financial position

as at June30, 2018

Trade and other receivables

1. Property, plant and equipment

1. Borrowings

1. Trade and other payables

1. Short- term borrowings

1. Long- term borrowings

1. Share capital

1. Reserves

Retained earnings

BLACK HOLE LTD.

Statement of changes in equity

for the year ended June30, 2018

This problem is associated with the management and accounting system of My Bag Ltd. The company has to prepare accounts regarding income tax liability. It also wants to know its obligation for tax expense for the financial year ending June 30, 2017. For this purpose, the rules and regulations of Australian Accounting Standards Board are given below, which will also be used in the paper later for reference while calculating tax liabilities. This will be followed by two worksheets i.e. for current tax liability and deferred tax liability of the organization based on the information available from the company.

Few rules and regulations of AASB that will be used in preparing tax worksheets are given below.

(Loftus, 2003)

According to AASB 116, the way to treat depreciation in books of accounts is to record the value of fixed asset that is depreciable in statement of financial position along with accumulated depreciation of arrears in a systematic manner. Tax offices provide a rate at which this expense is treated for tax calculations. The tax treatment is based on that rate and it is usually distinguished from the rate of depreciation applicable (Chang, Herbohn, & Tutticci, 2009).

Goodwill should be recognised for taxation and accounting purposes. This should be tested or checked for any impairment loss. For tax calculations, goodwill written- down is not exempted from taxation. However, there are some exceptions for temporary differences as given by AASB 112.

Another clause for long service leave is that it is considered as an expense in accounting. But it is recognised only when employee has taken a long service leave and it is actually paid to him/ her. When this is the case, only then it is allowed as a deduction in tax calculations.

Doubtful debts are a provision when there is a possibility of bad debts. As such, doubtful debts and bad debts are considered as expense in accounting. But they will not be deductible for tax purposes. However, it can be so only in case when bad debts are written off.

Entertainment expenses are not tax deductible.

Prepaid insurance works as an allowable deduction for tax calculations since they will be charged as an expense over time.

Until and unless, a warranty cost has been incurred, it will not be considered as tax deductible.

Rent received in advance is the taxable income for the year in which it is actually received.

(Hanlon & Nethercott, 2005)

MY BAG LTD.

Current tax worksheet

For the year ending June30, 2017

Working notes:

Interest receivable A/c

OR beginning balance + interest revenue – ending balance = interest received

i.e. 20,000 + 10,000 – 10,000 = $20,000.

Development asset- at cost

Additional deduction for development costs= 25% * $160,000= $40,000

Allowance for doubtful debts

OR beginning balance + doubt debt expense – ending balance = bad debts written off

i.e. 10,000 + 25,000 – 15,000 = $20,000.

Provision for long service leave

OR beginning balance + long service leave expense – ending balance = long service leave paid

i.e. 62,000 + 36,000 – 48,000 = $50,000.

Accumulated depreciation- for tax purposes

MY BAG LTD.

Deferred tax worksheet

as at June30, 2017

Working notes for tax bases:

[1] Tax base = future deductible amount (for assets that are generating economic benefits, taxable in future period).

[2] Tax base = carrying amount (for those assets that are not generating economic benefits, taxable in future).

(Herbohn, Tutticci, & Khor, 2010)

[1] Tax base = carrying amount – future deductible amount (liabilities other than unearned revenue).

[2] Tax base = carrying amount less future revenue that is not accounted for taxation (liabilities of unearned revenue).

(Richardson & Lanis, 2006)

References

Bennett, B., Bradbury, M., & Prangnell, H. (2006). Rules, principles and judgments in accounting standards. Abacus, 42(2), 189-204.

Chang, C., Herbohn, K., & Tutticci, I. (2009). Market’s perception of deferred tax accruals. Accounting & Finance, 49(4), 645-673.

Deegan, C. (2012). Australian financial accounting. McGraw-Hill Education Australia.

Hanlon, D., & Nethercott, L. (2005). Increasing Divergence between Accounting Practice and Taxation Law: The Case of in-Substance, The Debt Defeasance. Austl. Tax F., 20, 101.

Herbohn, K., Tutticci, I., & Khor, P. S. (2010). Changes in Unrecognised Deferred Tax Accruals from Carryâ€ÂForward Losses: Earnings Management or Signalling? Journal of Business Finance & Accounting, 37(7-8), 763-791.

Loftus, J. A. (2003). The CF and accounting standards: the persistence of discrepancies. Abacus, 39(3), 298-309.

Rahman, A. R. (2013). The Australian Accounting Standards Review Board (RLE Accounting): The Establishment of Its Participative Review Process. . Routledge.

Richardson, G., & Lanis, R. (2006). Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia. Journal of Accounting and Public Policy, 26(6), 689-704.