Requirement 1The valuation models have been discussed hereunder:-
Requirement 2The accounting standards that utilize the fair value method are as follows:
An asset is impaired when the carrying amount of the asset is in excess recoverable amount. The fair value method is utilized to ascertain the recoverable amount of the asset. The recoverable amount is the excess of the value in use or fair value.
The accounting standard explains the provisions related to the measurement of plant, property and equipment. The standard states that the fair value of the asset is the price that would be paid for purchasing the asset. Requirement 3The qualitative characteristics of financial information refer to those attributes that must be present in the financial statements. They make the financial information useful for the users of the financial information. The qualitative characteristics are of two types: fundamental qualitative characteristics and enhancing qualitative characteristics (CPA, 2012). The fundamental characteristics are the attributes that are very vital and without which the objective of the presentation of the financial information would fail. The enhancing qualitative characteristics are those characteristics that increase the usefulness of the financial information that has been presented. The comparability characteristics state that the financial information must be presented in such a manner that the users of the financial statements are able to identify the similarities and differences among the items (CPA, 2012). The information presented by the entity must be comparable with the information presented by other entities and within the entity across different periods. The treatment of different items must be consistent over time. The understandability qualitative characteristic states that the information that is present must be concise and clear so that it can be understood and is useful to the users of the financial statements (CPA, 2012). The timeliness of the financial information means that the financial information must be presented to the users of the financial information within the time when it has the potential to impact the economic decision of the users of the financial statements (CPA, 2012). The annual report of JB Hi-Fi and Wesfarmers have been studied to identify the cost model that has been adopted by these companies in the valuation of the non-current assets and to evaluate if the valuation model would enhance the usefulness of the financial information for the various users of the annual report. The plant, property and equipment of the Wesfarmers are measured at cost less accumulated depreciation fewer impairment losses. The items are depreciated over their useful life on astraight-line basis by the company. The land is not depreciated. The asset is derecognized when the asset is sold or disposed of on. The gain or loss arising on derecognition is recognized in the income statement of the company. The company measures the non-current assets by applying the historical cost model. The historical cost model for the measurement of the asset has been prescribed in the Conceptual Framework of Financial Information. It implies that the recognition of the non-current assets is in conformity with the Conceptual Framework. The financial information is presented by the entities in accordance with the Conceptual Framework. Therefore, the financial statements of the company would be comparable with the financial information of competitors as other entities would also present their financial information by applying the provisions of the Conceptual Framework. The accounting treatment of the company for the non-current assets did not undergo any change in the current year which indicates that consistent accounting treatment has been applied over these years which would enable the users to compare the current year’s figures with the prior-year figures. The company has presented all the assets under the head plant, property and equipment separately. It has also presented the additions, disposals, amortization and other events that have changed the amount of these plants, property and equipment separately. Therefore, the financial information would be understandable by the users. The company has provided information related to all such events of the financial year 2016-2017 which denotes that the entity has presented the information on a timely basis. If we study the notes to the plant, property and equipment of JB Hi-Fi, it can be observed that the company has also adopted the cost model and measures the assets at cost less accumulated depreciation less impairment of the assets. The valuation is in accordance with the provisions of the Conceptual Framework therefore it would enable the users in comparing this financial information with the financial information of the other entities. The company has presented the financial information of plant and equipment and leasehold improvement separately for the past two years. It would assist the users in determining the events that have occurred for the past two years that have impacted the non-current assets of the company. The information has been presented adheres to the timeliness as all the events that have impacted these assets have been presented by the company in a detailed manner within time. All the events have been distinctly identified and listed by the company which would make it easier for the users to comprehend the financial information that has been presented. Therefore, it improves the understandability of financial statements. |
Section B – Accounting for income tax
Hunter LTD
Determination of Taxable Income
(for the year ended 30 June 2017)
| Accounting profit before tax | 762725 | |
| Add: | ||
| Depreciation on equipment as per books | 26875 | |
| Accrued Wages | 2500 | |
| Impairment of Goodwill | 8000 | |
| Depreciation of Building | 56250 | |
| Long Service Leave | 72000 | |
| Bad Debt Expense | 7500 | |
| Interest Expense | 11000 | |
| Total Additions | 184125 | |
| 946850 | ||
| Less: | ||
| Depreciation on equipment as per Income Tax | 53750 | |
| Prepaid Insurance | 895 | |
| Government Grant | 5000 | |
| Payment of Long-Service Leave | 69000 | |
| Actual bad debts | 3500 | |
| Unearned Service Revenue | 4540 | |
| Payment of Interest | 11600 | |
| Total Deductions | 148285 | |
| Taxable income | 798565 | |
| Tax on taxable income @30% | ||
| Current tax liability | 239570 |
| Hunter Ltd – Tax Worksheet for the year ended 30 June 2016 | ||||||||
| Carrying Amount | Tax Base | Deductible T.D. | Taxable T.D. | Revaluation Surplus | Income Tax Expense | Current Tax Liability | ||
| Assets | ||||||||
| Cash | 58000 | 58000 | – | – | – | – | – | |
| Inventory | 32000 | 32000 | – | – | – | – | – | |
| Receivable | 27000 | 27000 | – | – | – | – | ||
| Prepaid Insurance | 2105 | – | 2105 | – | – | – | 631.5 | |
| Equipment | 188125 | 161250 | – | 26875 | 8062.5 | – | ||
| Building | 393750 | 450000 | 56250 | – | – | – | 16875 | |
| Land | 180000 | 180000 | – | – | – | – | – | |
| Goodwill (net) | 14000 | 14000 | – | – | – | – | – | |
| Liabilities | ||||||||
| Accounts Payable | 48000 | 48000 | – | – | – | – | – | |
| Accrued Interests | 15600 | – | – | 15600 | – | – | 4680 | |
| Accrued Wages | 18000 | – | – | 18000 | – | – | 5400 | |
| Service revenue received in advance | 42350 | – | – | 42350 | – | – | 12705 | |
| Provision for long service leave | 9000 | – | – | 9000 | – | – | 2700 | |
| Loan Payable | 100000 | 100000 | – | – | – | – | – | |
| Total Temporary Differences | 8062.5 | 42,991.50 | ||||||
| Excluded temporary differences | ||||||||
| -Building | 393750 | 450000 | 56250 | – | – | – | 16875 | |
| -Goodwill | 14000 | 14000 | – | – | – | – | – | |
| Net Temporary Differences | – | – | – | – | – | 8062.5 | 26116.5 | |
| Balance of Deferred Tax @ 30% | ||||||||
| – Deferred Tax Asset | – | – | – | – | – | – | 26,116.50 | |
| – Deferred Tax Liability | – | – | – | – | – | 8,062.50 | – | |
| Opening Deferred Tax | – | – | – | – | – | – | – | |
| Income Tax Expense for the year | – | 90000 | ||||||
| Adjustment of the year | – | – | – | – | – | 18,054.00 | – | |
| Date | Particulars | Dr | Cr |
| 30-06-16 | Deferred Tax Asset Debit | 26116.50 | |
| Tax Expense Credit | 26116.50 | ||
| (Being the amount of deferred tax asset recognized) | |||
| 30-06-16 | Tax Expense Debit | 8062.50 | |
| Deferred Tax Liability Credit | 8062.50 | ||
| (Being the amount of deferred tax liability recognized) | |||
| 30-06-16 | Deferred Tax Liability Debit | 8062.50 | |
| Deferred Tax Asset Credit | 8062.50 | ||
| (Being the deferred tax asset and liability offset against each other) | |||
| 30-06-16 | Tax Expense Debit | 18054 | |
| Income Tax Payable Credit | 18054 | ||
| (Being the tax expense transferred to income tax payable) | |||
| 30-06-16 | Tax Expense Debit | 11946 | |
| Income Tax Payable Credit | 11946 | ||
| (Being the accounting profit tax payable recognized) |
| Hunter Ltd – Tax Worksheet for the year ended 30 June 2017 | |||||||
| Carrying Amount | Tax Base | Deductible T.D. | Taxable T.D. | Revaluation Surplus | Income Tax Expense | Current Tax Liability | |
| Assets | |||||||
| Cash | |||||||
| Inventory | |||||||
| Receivable | |||||||
| Prepaid Insurance | |||||||
| Equipment | |||||||
| Building | |||||||
| Land | |||||||
| Goodwill (net) | |||||||
| Liabilities | |||||||
| Accounts Payable | |||||||
| Accrued Interests | |||||||
| Accrued Wages | |||||||
| Service revenue received in advance | |||||||
| Provision for long service leave | |||||||
| Loan Payable | |||||||
| Total Temporary Differences | |||||||
| Excluded temporary differences | |||||||
| -Building | |||||||
| -Goodwill | |||||||
| Net Temporary Differences | |||||||
| Balance of Deferred Tax @ 30% | |||||||
| – Deferred Tax Asset | |||||||
| – Deferred Tax Liability | |||||||
| Opening Deferred Tax | |||||||
| Income Tax Expense for the year | |||||||
| Adjustment of the year | |||||||
| Date | Particulars | Dr | Cr |