.494px;=”” block;=”” baseline;=”” 14px;=”” sans-serif;=”” arial,=”” helvetica,=”” neue”,=”” “helvetica=”” web”,=”” grot=”” “haas=”” inherit;=”” 6px;=”” 0px=”” border-box;=””>Question 2 Total 6 marks Capricorn Holdings Ltd is an Australian public company. The accounting staff of Capricorn Holdings Ltd have
asked for your assistance in preparing the company’s financial statements for the year ended 30 June 2016
and have provided you with the following information: Capricorn Holdings Ltd
Trial Balance
As at 30 June 2016
Item
Sales revenue
Revaluation of property, plant and equipment
Other income
Exchange differences on translation of foreign operations
Cost of goods sold
Distribution expenses
Occupancy expenses
Administrative expenses
Income tax expense
Finance costs
Loss for the year from discontinued operations
Other operating expenses
Loss on investments in equity instruments
Unrealised losses on cash flow hedges
Income tax related to items of other comprehensive income:
Investments in equity instruments
Cash flow hedges
Exchange differences on translation of foreign operations
Revaluation of property, plant and equipment Notes
1. Debit Credit
50,000
6,000
5,000
4,500 30,000
5,000
3,500
3,000
3,000
2,000
2,000
1,500
2,000
1,000
500
500
2,000
1,500 In relation to items of other comprehensive income: The revaluation of property, plant and equipment and investments in equity instruments will not
be reclassified subsequently to profit or loss. The cash flow hedges and exchange differences on translation of foreign operations may be
reclassified subsequently to profit or loss. 2. Comparative figures for the preceding year (ending 30 June 2015) have been omitted. 3. All amounts in the trial balance are in thousands ($’000). Question 2 continued over next page Required
(a) Prepare the Statement of profit or loss and other comprehensive income for Capricorn Holdings Ltd
for the year ended 30 June 2016 in accordance with the requirements of AASB 101 Presentation of
Financial Statements.
(4
marks)
(b) On 1 July 2016, Capricorn Holdings Ltd paid $500,000 to purchase a portfolio of financial assets
comprising shares in companies listed on the Australian Securities Exchange. In accordance with
AASB 9 Financial Instruments, Capricorn Holdings Ltd made an irrevocable decision to measure the
portfolio of financial assets at fair value through other comprehensive income.
As at 30 June 2017, the fair value of the portfolio of financial assets had increased to $580,000. Due
to concerns about the volatility of the Australian share market, Capricorn Holdings Ltd sold the
portfolio of financial assets on 1 July 2017 for $580,000. Capricorn Holdings Ltd reclassifies gains on
the sale of financial assets that were measured at fair value through other comprehensive income to
profit or loss.
Complete the following tables in relation to the portfolio of financial assets. Ignore tax. For each of
the two years, you should provide the appropriate line item description/s (for example, gain on sale
of financial assets) and the amount/s to be recognised in profit or loss and/or other comprehensive
income and show the net effect on total comprehensive income.
(2
marks) 30 June 2017 Line item description: Amount ($): Line item description: Amount ($): Profit or loss
Other comprehensive income
Total comprehensive income 30 June 2018
Profit or loss
Other comprehensive income
Total comprehensive income Question 3 Total 6 marks Nelson Ltd acquired an item of machinery for $280,000 on 1 July 2014. The residual value of the item of
machinery was estimated to be $30,000. Nelson Ltd decided that it was appropriate to depreciate the item of
machinery using the units-of-production (UOP) method based on the following expected units of output:
Year ended:
30 June 2015
30 June 2016
30 June 2017
30 June 2018
30 June 2019
Total: Units manufactured:
40,000
25,000
25,000
20,000
15,000
125,000 In January 2017, management of Nelson Ltd decided to significantly increase production to meet higher than
anticipated demand for their products. The expected output from the item of machinery was reassessed as
follows:
Year ended:
30 June 2017
30 June 2018
30 June 2019
30 June 2020
Total: Units manufactured:
30,000
30,000
20,000
20,000
100,000 Also in January 2017, the residual value of the item of machinery was reassessed as zero.
The management of Nelson Ltd propose to treat the change in depreciation resulting from the change in the
number of units manufactured and the reassessment of the residual value as the correction of prior-period
errors and to retrospectively restate the financial statements for the years ending 30 June 2016 and 30 June
2015. Question 3 continued over next page Required (a) Is Nelson Ltd correct in to treat both the change in depreciation resulting from the change in the
number of units manufactured and the reassessment of the residual value of the machine as the
correction of prior-period errors? Explain how both of these should be accounted for by Nelson Ltd in
accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. (1
mark)
(b) Complete the following table to show the depreciation expense for each year. Provide appropriate
supporting calculations.
(2
marks) Year ended: Depreciation expense: Supporting calculations 30 June 2015
30 June 2016
30 June 2017
30 June 2018
30 June 2019
30 June 2020 (c) What are the disclosures required by AASB 108 Accounting Policies, Changes in Accounting Estimates
and Errors that must be made by Nelson Ltd in its financial statements for the year ending 30 June
2017?
(1 mark)
(d) Prepare the appropriate note disclosure for Nelson Ltd’s financial statements for the year ended 30
June 2017.
(2
marks)