HA2032 Tutorial Questions Online Tutoring 1

Unit Code: HA2032
Unit Name: Corporate and Financial Accounting
Online Tutoring: Tutorial Questions Online Tutoring 1
Due: 11:30pm 15th May 2020
Weighting: 25%
Total Online Tutoring Marks: 50 Marks
Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in
this unit

Unit Learning Outcomes Assessed:
1. Demonstrate an understanding of the role of the Corporations Act, sources of authority, and accounting standards in the governance of companies and requirements for financial reporting;
2. Explain the various methods available to companies in their resource expansion and the impact of each on the accounting records and financial statements;
3. Critically analyse and interpret the financial statements and other disclosures produced by Australian companies and corporate groups;
4. Achieve a high level of competence in applying prescribed accounting techniques to the preparation of the consolidated financial statements of Australian companies and corporate groups;
5. Appreciate the role of each of the types of external administration and how each method is applied.

Week 1 Question (10 marks)
Discuss the advantages of listing a corporation on the stock exchange, such as the ASX? (10 marks)

Week 2 Question (10 marks)
The following data relates to ABC Ltd:
• Profit for the year ended 30 June 20X1, $500,000.
• On 31 March 20X1, the directors decided to pay an interim cash dividend of $100,000.
• On 7 April 20X1, the interim dividend was paid.
• For final dividends, the company’s constitution provides that the directors can recommend a
dividend to be subsequently declared by a resolution of the members in a general meeting.
• The directors recommended a final dividend of $250,000 to be paid.
• The shareholders accepted the final dividend at the annual general meeting, and payment was made on 14 September 20X1.

Required:
(a) Prepare journal entries to record the above dividend payments. (6 marks)
(b) Prepare the retained profits general ledger account. (4 marks)

Week 3 Question (10 marks)
Adelaide Briton Ltd issued a prospectus on 1 June 20X1 inviting applicants for 3,000 debentures of face amount $2,000, payable in full on application. Terms were 12% p.a. interest, payable annually, with a maturity date of 30 June 20X4. Exactly the right amount of applications were received by 30 June 20X1.

Required:
a) Prepare general journal entries to record the issue of debentures. (3 marks)
b) Prepare general journal entries to record the payments of interest and the repayment of principal. (3 marks)
c) Prepare ledger entries to record (a) and (b) above. (4 marks)

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Solution

Week 1: Listing on Stock Exchange Advantages

Access to Investors

The opportunity to tap public markets for funds for companies with large current and future investments and high growth cannot be ignored (Wood, 2007). The company might need funds for expanding its operations in future. Hence, by listing on stock exchange, the company can raise funds at lower cost without having much difficulty as all kinds of investors seek stock exchange for investments (Wood, 2007). This is the main advantage as listing can enlarge the number of investors to whom the shares can be sold (Wood, 2007).

Publicity

A good company can attract attention by listing on the stock exchange. It gives a free publicity due to daily quotations (Wood, 2007). It also raises the marketability of the company by making its value higher (Wood, 2007).

Liquidity

Shares of a private company can be traded on the National Stock Exchange (NSE) with minimal costs (Wood, 2007). It is equity funds raising source hence it reflects that the company is preferring staying less leveraged. Raising money from diverse investors can reduce the liquidity while making the companies less leveraged (Wood, 2007).

Underwriting Costs

Underwriting costs arising to listed companies is often less for their initial public offerings (IPOs) as compared to the companies that are not listed on the stock exchange (Wood, 2007).

Objective Assessment

NSE quotes the current prices of the bonds based on the prices at which the securities change hands so that investors can benefit from the objective assessment of the current stock price (Wood, 2007). It also provides a much higher collateral value for bank credits in future.

Other Benefits

Other benefits include;

Provision of tax relief
Image enhancement of company
Full disclosure of information
Efficient allocation of capital
Enabling capital flow to priority areas
Provide proper control and supervision of trading of securities
Impart liquidity to securities

Source: (Siddaiah, 2010)

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Week 4: Importance of Related Notes

Financial statement notes are the additional important information apart from the basic 3 financial statements. These notes to financial statements give due clarity to the users in right interpretation of the financial statements. (Riahi-Belkaoui, 2003).

Importance / Benefits of Financial Statement Notes

To avoid such clutter, notes to financial statements are separated from financial statements. It facilitates ease to a different level of users (Riahi-Belkaoui, 2003). Overall, with financial statement notes, the annual report of a company is organized for efficient and appropriate use (Riahi-Belkaoui, 2003).

Ease of Accessibility

Easy access saves the time of a user (Riahi-Belkaoui, 2003). Users have the most important things highlighted in the financial statements. They may or may not refer or may selectively refer to notes as per his requirements (Riahi-Belkaoui, 2003).

Helps Auditors

Financial auditors are required to furnish their opinion on the financial statements (Riahi-Belkaoui, 2003). These notes help auditors in forming their opinion about the financial statements (Riahi-Belkaoui, 2003).

Helps Financial Analysts

A financial analyst refers to financial statements notes for analysis and gaining information on future events. This helps the analysts during projects for carrying the valuation of a company (Riahi-Belkaoui, 2003).

Helps Shareholders

These notes help shareholders understand the real performance of the company in last year as well as project the growth in the coming years (Riahi-Belkaoui, 2003).

Provides Other Information

Other material information like law suits, significant threats to company’s revenues and standards details are presented in notes to financial statement (Riahi-Belkaoui, 2003). This can help analysts in observing the standards that were used while preparing the financial statements (Riahi-Belkaoui, 2003).