Annual Financial Statements NETPA

Question: Describe about the Annual Financial Statements for NETPA. Answer: We Are Assuming That Annual Financial Statements Have Been Approved On 1th August 2016. 1) It is been assumed that the annual financial statements has been approved by the board before 12th august 2016. So as per accounting standard no adjustment is required to be made in the financial year accounts. But we have to give a note in the notes to accounts in which we can define the amount of liability because adjustment can only be made if there were conditions existing at the time of preparation of financial statements. So following note will be added: NTEPA has conducted an audit to judge the responsibility of the company in leaking of toxic chemicals in which it was found and was evidenced with the audit report that the company is responsible for the leakage. So, fine of $1750000 will be levied. 2) As the goods has been proved faulty on 14th july i.e before the approval of board of directors. So, adjustments should be made in the financial statements. Entry of sales return should be made in the accounts. Following entry should be made in the accounts: Sales return A/c_______-Dr 43000 To Account receivable A/c 43000 3) As the notice has been received on 30th sept 2016. So, note should be given in the notes to accounts and adjustment will be made in the current year accounts. Following note will be given in in the notes to accounts: One of our customer who owe us $152000 has gone into liquidation and only 15 cents per dollar is expected to be received. Moreover the factory and warehouse of the customer has caught fire and was destroyed and insurance policy has also lapsed CGU is a Cash Generating Unit which means that units which are capable in generating cash to the entity. In other words, they are income generating units. These are classified separately to consider the impairment gain or loss. Only Cash Generating Units can be impaired downward or upward. Other than CGU assets cannot be impaired. Cash generating units may consist of many assets. Impairment testing requires the use of CGUs because as per accounting standard only Cash generating units can be impaired. If the asset is not Cash generating asset, then it cannot be impaired. So, for impairing an asset or unit, it has to be Cash generating or income generating unit for the entity. There can be 2 types of factors which can be considered for determining the impairment of assets: a) Internal factors: These factors are generated internally like i) physical damage of the asset ii) Asset is held for disposal Iii) worse economic performance than expected b) External factors: i) market value declines ii) Change in the technology which may lead asset to obsolesce iii) increase in market interest rates. As per AASB 136, impairment should be checked only of cash generating units. As per para 130 of the standard, cash generating units are those units which generate income to the company. As the milk production centre transfer milk to its vertical integrated structure but still it is the production centre without which income cannot be generated. As per the Australian accounting standard 121, any transactions related to foreign exchange should be recorded in the reporting currency and any foreign exchange difference arising out of foreign currency monetary items should be transferred to foreign translation reserve in the share capital and reserves section of balance sheet . This reserve may have a debit credit balance. For example we have purchased an asset on 1st august 2016 when rate of US $ was 3.55 but at the close of balance sheet date i.e. 31st December, 2016 the rate gets to 4.50.So, with this our liability gets increased because we have to pay high amount of Australian dollars. So this difference has to be transferred to foreign exchange translation reserve. Such foreign exchange difference arises from the difference in the exchange rates on the date of acquisition as compared to the rate on the close of balance sheet, if payables are standing in the balance sheet Moreover On consolidation, net investment has to be shown in the consolidated balance sheet with a balance of foreign currency translation reserve. The exchange difference arises on the balances of income or expense should be debited to profit Loss account because this will depict the actual profit Loss arising out of transactions. Therefore provision has to be created at the end of the year. (A) As per accounting standard, intangibles assets can only be recorded in the assets side of the balance sheet if it is purchased or some cost has been spent on it. Self -generated intangible asset cannot be recognized as an asset in the balance sheet. We can deduce from the fact that the carrying amount of the brand names are same in 2014 and 2015 that the company has purchased such brands of the value standing in the companys books and company is not applying amortization on it . This is the reason values are same in 2014 and 2015. References: Compiled Accounting standard ASSB 121, The effects of changes in Foreign exchange rates, viewed on 8th oct, 2016, https://www.aasb.gov.au/admin/file/content105/c9/AASB121_07-04_COMPfeb07_02-07.pdf.