Question 1 Required: Using Loftus et al (2020), Chapter 1 and the AASB Corporate Plan

2021-2022, provide a one-page description of the role of AASB and the AASB standard
setting process
The role of the AASB
 Contribute to stakeholder confidence in the Australian economy, including its capital
markets and external reporting
 To do this by developing, issuing and maintaining principles-based Australian
accounting and external reporting standards and guidance that meet user needs and
enhance external reporting consistency and quality
 Contribute to the development of a single set of accounting and external reporting
standards for world-wide use
 Especially as, since 2005, AASB adopts accounting standards that are the same as
those issued by the International Accounting Standards Board (IASB)
 Develop a conceptual framework, not having the force of an accounting standard,
for the purpose of evaluating proposed accounting standards and international
standards
 Set accounting standards for the three sectors: for-profit companies, not-for-profit
private sector entities (e.g. charities and incorporated associations) and the public

The AASB standard setting process

 Accounting standards are developed through a consultation process
 AASB consults extensively with Australian entities and other key stakeholders, so
that they can properly reflect the interests of the Australian community at both
domestic and international levels
 If an accounting issue is added to the AASB’s agenda, AASB will start by researching
the issue, then will consider solutions and consult with stakeholders. The AASB may
then issue exposure drafts, invitations to comment, draft interpretations and
discussion papers.
 The consultation process may involve focus groups and roundtable discussions with
stakeholders and responses to exposure drafts. The AASB may also draw on project
advisory panels and interpretation advisory panels
 For standards intended for profit-seeking entities, the exposure drafts issued by the
AASB typically incorporate exposure drafts issued by the IASB, along with Australian-
specific matters for comment as applicable.
 Use of empirical research from Australian and international academics to support
the identification of issues, analysis of possible solutions and evidence of
effectiveness once a standard has been finalised, as well as a means of influencing
internationally.
 Technical issues on the IASB work program are also included on the AASB work
program. The AASB members and staff can identify issues requiring consideration.
Some of these issues can be referred to the IASB for consideration and some can be
addressed domestically
 Issuing an accounting standard by the IASB results in a corresponding and consistent
standard being issued by the AASB. The text of the international accounting standard
may be modified to take account of the Australian legal or institutional environment
ensuring that any disclosure and transparency provisions in the standard are

1
 appropriate to the Australian legal or institutional environment.
Question 2
Required: Using Loftus et al (2020), Chapter 1 and the CF (2021), provide a one-page
description of the purpose of general purpose financial reports (GPFR), identifying the
objectives, users of GPFR, type of information, and the qualitative characteristics of the
information.
The AASB has a Conceptual framework that sets out the purpose of preparing financial
statements, the key elements of financial statements (assets, liabilities, revenue, expenses
and equity) and provides guidance on how to set standards.

Accounting standards generally set recognition, measurement, classification, presentation

and disclosure requirements for the elements of financial statements.”

Objective and users

 The objective of general purpose financial reporting is to provide financial
information about the reporting entity that is useful to existing and potential
investors, lenders and other creditors (these are the primary user group) in making
decisions about providing resources to the entity
 Other parties, such as regulators and members of the public other than the primary
user group, may also find general purpose financial reports useful. However, those
reports are not primarily directed to these other groups

Types of information

 General purpose financial reports provide information about the financial position of
a reporting entity, which is information about the entity’s economic resources and
the claims against the reporting entity.
 General purpose financial reports provide information about the financial
performance of a reporting entity, which is information about changes in a reporting
entity’s economic resources and claims
 Financial information about changes in economic resources and claims not resulting
from financial performance is important also, such as issuing debt or equity
instruments
 The financial performance of the entity must be reflected by accrual accounting.
 Information about the entity’s past cash flows is also important.
Qualitative characteristics
 The fundamental qualitative characteristics of financial information are relevance
and faithful representation.
 Information is relevant if it: is capable of making a difference in the decisions; has
predictive value, confirmatory value or both.
 Information is faithfully represented if it is: complete; neutral; and, free from error.
 Must faithfully represent the substance of the phenomena that it purports to
represent, ie “economic substance over legal form”

2
Question 3
Required: Go to Loftus et al (2020), Chapter 13 Application and Analysis Exercise 13.20,
and by viewing the appropriate sections of the Statement of Changes in Equity, provide
journal entries for the following:

 Closing profit for the year

 Issue of a bonus share from general reserve
 Transfers between the general reserve and retained earnings
 Dividends paid and dividends declared

General reserve
Balance at 1 July 2022 $ 120  000
Bonus issue of shares (80  000)
Transfer from retained earnings 45  000
Balance at 30 June 2023 $ 85  000
Retained earnings
Balance at 1 July 2022 $ 82  000
Dividends declared (12  000)
Dividends paid (6  000)
Transfer to general reserve (45  000)
Profit for the period 164 370
Balance at 30 June 2023 $ 183 370

Profit & Loss Summary Dr 164 370

Retained Earnings Cr 164 370
(Closing profit to retained earnings)

General Reserve Dr 80 000

Share Capital Cr 80 000
(Issue of bonus shares from general reserve)

Retained Earnings Dr 45 000

General Reserve Cr 45 000
(Transfer to general reserve)

3
 Retained Earnings Dr 12 000
Dividend payable Cr 12 000
(Dividends declared)

Retained Earnings Dr 6 000

Cash Cr 6 000
(Dividends paid)

Question 4
Mongoose Ltd had the following balances on 1 July 2021:
Share capital (120 000 ordinary shares @ $2) $240 000
General Reserve $45 000
Retained Earnings $90 000

The following transactions and events occurred during the year ending 30 June 2022:
2021
3 August Paid a $15 000 dividend that had been declared by the directors on 30 June
2021. Mongoose Ltd recognises dividends when declared by the directors.

30 December Paid an interim dividend of $22 000

2022
25 March Declared a 1-10 bonus share issue at $2 each, using retained earnings.

30 June Mongoose Ltd calculated a profit after tax of $114 000. A final dividend of
$20000 was declared and $15 000 was transferred to the general reserve
from retained earnings.

Required:
a) Prepare journal entries in relation to the above transactions and events.
b) Prepare the Statement of Changes in Equity for Mongoose Ltd for the year ended
30 June 2022.

Note: this is a question created by McCombie (2022)

a)
3 Aug 2021
Dividends payable Dr 15 000
Cash Cr 15 000
(Payment of previous year final dividend declared)

4
30 Dec 2021
Retained Earnings Dr 22 000
Cash Cr 22 000
(Interim dividend paid)

25 Mar 2022
Retained Earnings Dr 24 000
Share Capital Cr *24 000
(Issue of a 1 for 10 bonus share from retained earnings)
*120 000 x 1/10 x $2

30 June 2022
Profit & Loss Summary Dr 114 000
Retained Earnings Cr 114 000
(Closing profit to retained earnings)

Retained Earnings Dr 20 000

Dividend payable Cr 20 000
(Final dividend declared)

Retained Earnings Dr 15 000

General Reserve Cr 15 000
(Transfer to general reserve)

Mongoose Ltd
Statement of Changes in Equity
For the year ended 30 June 2022
Share capital:
Balance at 1 July 2021 (120 000 ordinary shares @ $2) $240 000
Issue of 12 000 bonus shares @ $2 24 000
Balance at 30 June 2022 $264 000

General reserve:
Balance at 1 July 2021 $45 000
Transfer from retained earnings 15 000
Balance at 30 June 2022 $60 000
Retained earnings:
Balance at 1 July 2021 $90 000
Dividend paid (22 000)
Bonus share issue (24 000)
Dividend declared (20 000)
Transfer to general reserve (15 000)
Profit for the period 114 000
Balance at 30 June 2022 $123 000