Tahlia Corporation is one of the prominent and fastest-growing event management company based in Sydney, Australia. This company has clients from Australia, Hong Kong, U.S.A, Singapore, England, Malaysia, Russia and Europe. In 2019, this company appointed Miss Tahlia as the CEO of Tahlia Corporation to look after the business. Tahlia has appointed you as the company’s chief financial officer (CFO) to look after the company’s financial matters and help Tahlia to make strategic decisions. As per the corporation act 2001, this company is required to comply with Australian accounting standards. Hence, Tahlia called for a business meeting with you to discuss the financial compliance matters with you. As a CFO, you have advised the Tahlia that to comply with accounting standards, the company is required to prepare a complete set of financial statement which includes a statement of financial performance, statement of change of equity, statement of financial position, statement of cash flows as well as notes to the accounts. The CEO (Thalia) questions the usefulness of the cash flow statement as she has stated that all she needs to know is if the company has made a profit and has a healthy balance sheet. However, Tahlia has asked you prepare a full set of financial statements including the statement of cash flows. After you prepare the cash flows statement, it revealed a poor cash position, whereas the statement of financial performance was showing a profitable result for the year. The CEO restated his opinion that the cash flow statement did not give a good indication of the activities of the company. Tahlia also heavily depends on statement of financial position and statement of financial performance to make most of her business decisions.
- Prepare a response for Tahlia (CEO) explaining the purpose and usefulness of the cash flow statement and why it can report a negative cash flow position while the company is making a profit.
- Write a report to the CEO about the limitation of a statement of financial position and financial performance as a source of information for users of general-purpose financial statements (discuss at least two major limitations in your report
Newcastle Ltd, has been manufacturing and selling swimming suits for men and women for the last two years. The company commenced its operations on 1 July 2018 by issuing 350 000, $5 shares fully paid. There was no other cost related to the share issue.
For the year ending 30 June 2020, the company recorded the following aggregate transactions:
|Sales (90 % credit and 10 % cash sales)||
6 395 000
|Cost of Sales||
4 419 000
|Gain on sale of plant||
|Employee benefit expenses – Admin||
|Utilities expenses (1/3 selling & 2/3 admin)||
|Depreciation expense- Admin||
|Selling & Distribution Expenses||
|Insurance expense – Admin||
|Doubtful debts expense||
|Other borrowing expenses||
|Income tax expense||
The following additional information was noted during the preparation of financial statements for the year ended 30 June 2020:
Additional 80 000 @ $5 fully paid shares were issued On 1 July 2019.
A cash dividend of $180 000 was declared and paid during the 2020 financial year and a final dividend for 2020 of $75 000 was proposed but not recognised in the financial statements.
Inventory was measured at the lower of cost and net realizable value.
Buildings, plant and equipment were measured at cost. The benefits were expected to be received evenly over the useful life of the asset.
Land was revalued upward by $100 000 (related income tax for this transaction was $30 000). The revaluation gain will not be reclassified and has been recorded in the ‘Land Revaluation Surplus’. The valuation was conducted by the registered valuer, Abbey Valuations Pty Ltd.
Financial assets held for trading are equity investments that are held for the purpose of selling and short-term profit taking.
$127 000 of other loans are repayable within six months. The remaining amount is payable in full at the end of 2022
$30 000 of bank loans are repayable within one year. The remaining amount is payable in full at the end of 2024.
The provision for employee benefits includes $47 000 payable within one year.
The warranty provision is in respect of a 12-month warranty given on certain goods sold.
The bank loan is for 5 years and repayable in full at the end of the term. The interest rate is 9% and it is secured over the land.
Newcastle Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies expenses by function within the statement.
Summarised account balances are provided below:
|Year-end balances, 30 June 2020||
|Cash on Hand||
|Allowance for doubtful debts||
|Financial assets held for trading||
|Plant and equipment||
1 350 000
|Accumulated depreciation – plant and equipment||
|Accumulated depreciation – buildings||
|Accumulated amortisation of patent||
|Accumulated depreciation – furniture||
|Provision for employee benefits||
|Provision for warranty||
2 150 000
|Retained earnings, 30 June 2019||
|Land revaluation surplus||
|Current tax liability||
|Deferred tax asset||34 000|
For the year ending 30 June 2020 (Note: comparative financial statements are not required),
- Using the pro forma table supplied in appendix B, prepare a preliminary trial balance for Newcastle Ltd;
- Prepare a statement of comprehensive income for Newcastle Ltd in accordance with the requirements of AASB 101. Newcastle Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies expenses by function within the statement
- Prepare a statement of changes in equity for Newcastle Ltd in accordance with the requirements of AASB 10
- Prepare a statement of financial position for Newcastle Ltd in accordance with AASB 101. Use the current/non-current presentation format
- Prepare appropriate notes to the accounts. (You do not need to prepare notes related to income taxes. Include the following note as note 1. You may optionally add accounting policies to this note):
Summary of significant accounting policies Basis of accounting
The financial report is a general-purpose financial report which has been prepared on the historical cost basis, except where stated otherwise.
Statement of Compliance
The financial statements have been prepared in accordance with the requirements of the Corporations Act, Australian Accounting Standards which include Australian equivalents to International Financial Reporting Standards (AIFRSs) and AASB Interpretations. Compliance with AIFRSs ensures the financial statements and notes comply with International Financial Reporting Standards”
- After preparing and analysing the Newcastle Ltd.’s financial statements, prepare a brief report (no more than 500 words) for the CEO explaining the company’s financial performance and position.
- Many investors as well as public are now concerned about organisation’s social and environmental impacts. Therefore, more and more organisations are now providing various social and environmental information. Tahlia has asked you to identify what types of social and environmental information Newcastle ltd should provide to their stakeholders? Identify five important types of social and environment information/indicators (such as “Total amount of GHG emissions”) related Newcastle Ltd and explain briefly the reason for selecting each of them
The post Prepare a response for Tahlia (CEO) explaining the purpose and usefulness of the cash flow statement and why it can report a negative cash flow position while the company is making a profit. appeared first on Scholar Writers.
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