Accounting

QUESTION 1

Lucia works as an accountant for a motor vehicle engine parts manufacturer called Vroom Ltd, owned by an international car firm. Her manager, Freda Chuse, is paid a bonus depending on the profitability of the company. If Vroom Ltd makes $1 million profit, Freda receives a bonus of $20 000 that increases progressively to $30 000 for a $3 million profit. If the profit of Vroom Ltd exceeds $3 million, Freda receives the maximum bonus of $30 000. Vroom Ltd currently receives a grant from the government of $100 000 per year to employ and train apprentice mechanics.

At the end of May, it appears that Vroom Ltd will make a profit of approximately $3.5 million for the year ending 30 June 2019. Freda approached Lucia and said that if the company made too much profit then the government may stop paying Vroom Ltd the grant for training apprentice mechanics, and it would lose the $100 000 tax-free cash inflow. Freda instructed Lucia to find ways of deferring recognition of as much revenue as possible until the following financial year, for which the forecasts for the industry were quite poor, and to accrue as many expenses as possible at the end of the current accounting period when it came to making the end-of-period adjustments. Although Lucia was not happy with this instruction, she did not want to risk her own opportunities for promotion by upsetting her manager.

Required:

  1. Who are the stakeholders in this situation?
  2. Why do you believe Freda asked Lucia to do this
  3. What are the ethical issues involved her?
  4. Can Lucia defer revenues and accrue as many expenses as possible and still be ethical?

QUESTION 2

You are required to select a company from the Top 100 publicly listed companies in Australia that publish a stand-alone sustainability report or there is a sustainability aspect in the annual report. Then refer to the latest financial report (2019) of the selected company and answer the following questions using the balance sheet and notes to the financial statements.

 Required:

  1. Briefly outline the profile of the selected company.
  2. State the accounting equation for the company in dollar figures at the end of the reporting period and beginning of the reporting year. Comment on what this reveals about company’s financing policy
  3. Explain why the change in total assets equals the change in total liabilities plus the change in total equity.
  4. State company’s profit (loss) for the last reporting year.
  5. Determine company’s net increase (decrease) in cash flows for the last reporting period in aggregate and by operating, investing and financing categories.
  6. Explain how company could apply the principle of materiality of an item of financial information when preparing financial reports.
  7. Corporate reporting is evolving and is more than reporting on profits. Reporting on the entity’s performance related to people and the planet is increasingly important and included within the annual report or as a stand-alone report. List examples of company’s sustainability reporting.