Topic 2: Presentation of financial statements Topic 3:
Accounting policies and other disclosures
You are a senior financial accountant at Wagga Ltd, a company
that distributes imported furniture. One of the new graduate
accountants has prepared the following income statement for the
year ended 30 June 2019:
Income Statement for the year ended 30 June 2019
Revenue (NOTE 1) 1,380,000
Cost of sales (590,000)
Gross profit 790,000
Other income (NOTE 2) 18,500
Distribution expenses (NOTE 3) (55,000)
Administrative expenses (NOTE 4) (40,000)
Other expenses (NOTE5) (175,000)
Profit for the year 538,500
Other comprehensive income: Net profit on asset (NOTE6)
35,000
Loss on inventories (NOTE 7)(25,000)
Other comprehensive income for the year 10,000
Total comprehensive income for the year 548,500
Notes:
1. Revenue includes interest revenue and rent received of
$180,000 and $20,000 respectively.
2. Other income of $18,500 (net of tax) relates to gains
arising from the translation of transactions denominated in foreign
currencies.
3. Distribution expenses includes sales returns of
$15,000.
4. Included in the administrative expenses are interest
expense of $25,000.
5. Other expenses amount includes income tax expense of
$128,000.
6. Net profit on asset relates to gains made on the disposal
of an office building of Wagga Ltd.
7. Loss on inventories relates to the write-down of
inventories to their net realisable values.
8. On 20 August 2019, a fire occurred and destroyed some of
the furniture. The financial statements for the year ended 30 June
2019 were authorised on 12 September 2019. This loss, totaling
$16,000, has not been recorded in the books. The amount involved is
considered material.
Wagga Ltd uses the single statement format for the statement
of profit or loss and other comprehensive income and classifies
their expenses by function in the statement.
Required:
A. In relation to the classification of expenses as adopted by
Wagga Ltd, state and explain the other classification style allowed
by AASB101Presentation of Financial Statements. Which
classification style is better? Do you think Wagga Ltd has chosen a
method that is better for them? Why?
B. How should Wagga Ltd account for the fire occurred on 20
August 2019 in their financial statements for the period ending 30
June 2019? When should the adjustment for the loss be made in the
accounts?Note:You should substantiate your answer by making
references to AASB110Events after the Reporting Period.
C. Prepare a corrected statement of profit or loss and other
comprehensive income for Wagga Ltd for the year ended 30 June 2019,
to ensure that it complies with the requirements of AASB 101 and
the Australian Conceptual Framework, where relevant.
Provide references to relevant authorities to support your
answers. Note:You are not required to provide any notes to the
accounts or disclosures relating to this statement.
Important tips:
• Ignore the requirement for prior period comparative
figures.
• For requirement 3 above, you should provide separately all
workings and explanations to support the figures presented in the
statement and make references to AASB101 wherever possible to
substantiate your answer. In preparing the statement, you should
use the captions that are generally used by a listed entity.
