Question & Answer: Question 1 [32 marks]…..

Question 1 [32 marks]
Topic 3: Financial report presentation and disclosure
You are the chief accountant of Wesley Ltd, a big accounting firm in town. Jennifer, the trainee
accountant has presented you with the balance sheet of one of your clients, Dom Ltd. The balance
sheet prepared by Jennifer is shown below.

Dom Ltd
Statement of financial position
for the year ending 30 June 2017
Assets $ Liabilities $
Cash and cash equivalents (24,000) Trade and other payables 110,000
Trade and other receivables 160,000
Allowance for inventory
Inventories 40,000
Accumulated depreciation –
property, plant and equipment
Property, plant and
equipment and intangible
Financial liabilities 600,000
Investment property 114,000 Provisions 48,000
Less: loan taken for
investment property
Ordinary share capital 200,000
Other assets 46,000
Shareholders’ equity
Retained profits 20,000
Reserves 24,000
1,066,000 1,066,000
Additional information related to Dom Ltd:
(1) Cash and cash equivalents consists of $4,000 cash on hand and a bank overdraft of $28,000.
(2) All receivables are expected to be received within 1 year.
(3) The intangible assets included as part of the property, plant and equipment amounted to
(4) The investment property relates to a piece of land held for long-term capital appreciation
purpose and all of the loans taken for the purpose of the investment property are repayable within 1
(5) Other assets includes $10,000 current and $36,000 non-current.
(6) Included in the trade and other payables are $40,000 repayable within 1 year.
(7) $100,000 included in the financial liabilities is repayable within 1 year.
(8) Provisions consist of current tax liabilities of $8,000 and the balance is related to provision for
a 6-month warranty on certain goods sold.
Write a memo to Jennifer:
(a) Explain the key problems with the statement of financial position prepared by Jennifer. You
should make references to requirements of AASB101, where appropriate.
(b) Prepare the corrected version of the statement of financial position of Dom Ltd for the year
ended 30 June 2017 and attach it to the end of the memo, for Jennifer’s review. Your corrected
statement of financial position should be prepared in accordance with AASB101, showing only
minimum line items on the face of the statement, when relevant. Notes to the accounts are not
Question 1 Max. marks
Issues identified with the original statement of
financial position [part (a)]
Preparation of corrected statement of financial
position including references made to
AASB101 [part (b)]
Overall presentation 2
Total 32

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