Cash flows O.

B (trade and other receivables) + contributed by subsidiary+ sales revenue-cash receipts from customers*- provisions (write off)如下=closing bal
O.B (inventory) + contributed by subsidiary- COGS+ purchases* = closing bal
O.B (trade payables) + contributed by subsidiary+ purchases-cash payments*= closing bal
O.B (non current assets) + contributed by subsidiary- dep’n exp + cash paid for purchase of assets* = closing bal
O.B (income tax payable) + ITE/DTL (from step 3)- cash payments*= closing bal or +DTA(增加值)-DTL 增加值
O.B (DTL)+contribution + Revaluation – Accrual* = closing bal.
O.B (Goodwill)+contribution-impairment loss+cash payment*=closing bal.
Provisions for doubtful debts: opening balance + acq of sub + doubtful debts exp – acc rec (write off)* = closing balance
Income tax (1) revaluation entry dr Land cr R.R. \ dr R.R. cr DTL (2) opening bal (DTL) + acq of sub + RR – accrual*= closing balance (3) notional tax effect entry: dr
income tax expense (for this year given) dr DTL (from 2) cr income tax payable (calculate)
Reconciliation note1: Step 1: Profit for the year + depn + impairment loss; 2: add/deduct non-operating items; 3. add de assets/in. liability; deduct increase.assets/de.liability.
Note 2: Consideration paid in cash-FV of sub. net assets at acquisition(acquisition 表上的)=goodwill; consideration paid in cash – cash acquired =net cash out flow to
acquire(结果放到 cash flow statement)
Directed method: cash flows from operating activities: (receive from customers, payment to suppliers, employees; interest payment; income tax )from investing activities
include: (purchase of goodwill, PPE, proceed from sale of equipment, cash used to acquire sub), from financing activities: (dividend, term loans, share issue, prepayment for
loan to related parties); net cash reduction; net cash at the beginning; net cash at the end of period
Segmentation 10% test: total revenue(include intra-group transaction), profit, total asset all exclude general corporate. 75% test of total revenue: reported item exclude
intra-group transaction/total revenue(include general corporate, exclude intra-group) Reconciliation items: 1.consolidation elimination: (Inter-segment sales, Unrealised
profit after tax in segment result, Unrealised profit before tax in segment assets (property), Acquisitions of property at cost) 2.unallocated to segment: income tax, unallocated
interest expense, things related to general corporate)Foreign currency:

Assets and liabilities Income and Gain/loss Capital item For/against

expenses

Temporal method monetary items : at closing date rate, translated at the Income AASB Consistent with the historical cost model
non-monetary item rated applicable at statement
the time they were 121.41 Against : messy to prepare if not translating
if at historical cost, use exchange rate recognized Foreign from a trial balance/ does not retain financial
(when functional at the date of original transaction, if at currency Share capital at relationships that existed in the financial
currency of the fair value use exchange rate at the non monetary e.g. Gain/Loss acq& Pre-acq statement of the foreign subsidiary/ in consis
subsidiary =AUD) date when fair value was determined. dep’n COGS use reserves: tent with the effects of exchange rate movem
rate applies to the historical rated ents of foreign operations from the perspec
non monetary item tive of the parent/more volatility in earnings

Current rate Translate using the closing rate Translate at the Other Relatively simple to understand/preserve
method(when (exchange rate at the end of the exchange rate at the comprehensive Post-acq balance sheet ratios of foreign sub/net assets
functional currency reporting period) time of the income 121.39c movements in is a more sensible definition of exposure risk
of the subsidiary is transaction (can use share of parent Against: No conceptual
not theAUD) *translation in cash flow: apply average rate if Foreign capital/reserves: at foundation, neither in AUD historical cost of
exchange rates that the cash flow multiple currency the time that the asset or current value of the asset.
AASB 121.39 occurs-average rates are sometimes transactions) translation movement 2.distorts relationship between IS and
used as an approximation 调整因为 reserve recognised BS.3.amout parent receives as dividend may
clo.bal of cash is translated at y/e rate. not be the same as translated profits of sub.

Goodwill is translated at current rate at y/e—exchange differences go to FCTR; Foreign exchange G/L recognized in parent entity’s accounts for loans being part of net
investment in foreign subsidiary are transferred to FCTR in the CFS(AASB 121.32). This is an exception to the “general rule” that exchange difference go to IS.

Temporal method: 1. Convert assets and liabilities balance.2.convert equity balance.3.work account closing retained earning balance [net assets – equity balance(ORE
bal+share capital)].4.transfer closing retained earnings to profit for the year(transfer step 3 balance from B/S to I/S).5.convert income and expense at date rate and where
applicable transaction date rate.6.work out foreign exchange g/l. revenue-expense –CRE=foreign exchange g/l. Current method: 1. Convert income and expense using
transaction rate and average rate.2. transfer profit to RE.3.convert asset and liability at the current rate at year end. 4. Convert equity balance using the historical rate or
revaluation date rate. 5. Work out closing balance of FCTR(net assets-equity balance)

Equity accounting: *Post acquisition ORE movement : Dr.Investment in AA Cr ORE (opening ORE-acq 之前的 RE)*proportion or % shareholding x(post-acq. Profit-
dividend). Equity accounting assumed the investment is carried at cost in investor’s separate f/s. if fair value is used in investor’s books,reverse: reverse revaluation
increment to restore investment to cost and then apply equity accounting as usual. Dr Fair value
reserve available-for-sale-assets Dr DTL, Cr investment in associate revaluation surplus 不用乘税！
equity CA 如果是 FV,要 reverse back to cost,再按左表算

Joint venture: 1 Contribution entry Dr Accum. Dep’n / Interest in jointly controlled operation Cr
Cash/ equipment(original cost)/Gain on sale of non-current asset in % / revaluation surplus (used
in revaluation model, revaluation surplus=gain

2. Disaggregation of jointly controlled assets/liabilities/costs of production (cost model use CV /

fair value model use fair value 50%!) Dr assets, Cr liabilities/interest in jointly controlled operation
(disaggregation in PPE and depn)Revaluation use PPE value in F/S, COST model use table

3 Record depreciation
on %interest in jointly
controlled operation: Dr
costs of
production-amor/dep’n
Cr Accum. Dep’n-PPE
(* % / yrs)
4 Adjust management fees: DR cash CR Management fees revenue / Production cost- management
fees expense
5 Recognise total costs of production for the output received from the jointly controlled operation DR cost of sales / inventories- finished goods CR costs of production
(calculated as: allocation of production costs + dep’n/amor = total production costs, then split between COGS and FG)
6 Recognise sales of joint venture output: Dr Cash/trade receivables Cr Sales
 Cash flow “no need to disclose
group cash flows because analyst
can estimate cash flows”1.nature
of calculation required to estimate
cash flows from other data in the
F/S. 2.consider whether sufficient
data is available to analyst to
perform such calculation/ whether
analyst have sufficient accounting
skills to develop the algorithms.3.The type of data required to calculate cash flow. Definition of cash and cash equivalents: AASB107.6 An overnight deposit on the short-term money
market–cash equivalent.Gold bullion held by a mining coy-inventory. Travellers’ cheques-cash equivalent. Share offered for sale-not cash equivalent. Deposit received-cash (无论
conditions of contract e.g. 30 天内退款) consolidation report and assessment of solvency: While there is nothing in AASB 107 that requires the disaggregation of consolidated cash
flows, the standard encourages (but does not require) such cash flow information in AASB 107.50(d).Further paragraph 52 states that “the disclosure of segmental cash flows enables
users to obtain a better understanding of the relationship between the cash flows of the business as a whole.The main issue in this question concerns solvency. A company is solely
responsible for its own debts if there are no other guarantees in place and under limited liability a creditor can only look to the amount unpaid on issued shares. Under these circumstances
a statement of cash flow of a single company is likely to be the most useful type of cash flow statement to assess solvency. Where each company in corporate group (parent and
subsidiaries) operates without guaranteeing another company’s debts the notion of "group solvency" does not apply, as the "quote" in the question suggests. In a group where related
companies are not responsible for each others debts, then a highly aggregated cash flow statement does not help interpret the ability of any company in the group, including the parent, to
meet its debts as and when they fall due. Where the companies in a corporate group guarantee each other’s debts the notion of group solvency does have meaning because it is possible to
look to any company in the group for restitution of the debt. This suggests that cash flow reporting by "areas of mutual guarantee" would be useful for the evaluation of solvency. It
should be noted that corporate groups with wholly owned subsidiaries often enter into a deed of cross guarantee to guarantee each other’s debts. The purpose of such action is to take
advantage of an ASIC Class Order that relieves wholly owned subsidiaries from having to prepare an audited financial report and directors’ report.
SegmentationSegment reporting 到底好不好:好处： This information should enable users to better understand the entity’s past performance and assess the entity’s risks and returns.
(1)Many entities provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and
risks. (2)Information about an entity’s different types of products and services and its operations in different geographical areas … is relevant to assessing the risks and returns of a
diversified or multinational entity but may not be determinable from the aggregated data.(3) Better understand the enterprise’s performance. Better assess its prospects for future net cash
flows. (4)a layer of information on the risk and return characteristics of the enterprise (5)is relevant to the economic decision making of financial report users. (i) improved the accuracy of
consolidated sales and earnings forecasts and can reduce the cost of capital of an entity;(ii) reduces information asymmetry; (iii) is perceived by analysts to be relevant to forecasting.坏处
： (a) Investors in the parent entity of a group do not invest in individual segments so segments are not the accounting entities of interest; (b) data is difficult to interpret and may confuse
users; (c) data involves numerous judgements in the determination of reportable segments and arbitrary allocations in the determination of segment assets and segment expenses.
Therefore, segment information fails the qualitative characteristic of reliability; (d) Segment data is not comparable as different entities measure segment results in different ways. Hence
segment data fails the test of comparability. (e) Segment reporting may act to stymie corporate innovation because managers may shy away from investment in products or markets that
will result in initial losses that must be separately disclosed; (g) The cost of compiling segment information outweighs any perceived benefits.
Segment report Group work Part 3 (a) Firstly, according to AASB 8 Appendix A (a), operating segment is defined as a component of entity which undertake business activities that
may generate revenues and expenses. It implies that several organisation units which are merely cost centres, e.g. personnel or marketing departments, may be excluded from the
operating segment. However, the costs incurred in these units would be expected to be reported regularly to WOW Group chief operating decision maker. Secondly, information
regarding non-cash revenues and cash flows of the reportable segments are not required to be disclosed in accordance with AASB 8. However, cash flow information is of great
importance in assessing the financial situation (e.g. liquidity and solvency) by the CODM in WOW Group. (b) As required in AASB 8.1, an entity should “disclose information to enable
users of its financial statements to evaluate the nature and financial effects of business activities”. However, information on cost of several organisational units is not required to be
disclosed in the segment reporting. # One of the regulators rationales for not requiring information on these costs to be disclosed in the segment reporting is the fact that the compilation
costs may outweigh the perceived benefits. In addition, it seems that the personnel cost information is less important for the decision makers and investors in assessing the business’
performance. Moreover, the costs incurred in the personnel and marketing departments may include commercially sensitive information. #On the other hand, based on the management
approach to segment reporting, the internal segment information is already available. Thus minimal adjustments are needed before reporting to the external users. That is to say, the cost
of preparing such information is not that high. Furthermore, information in term of costs may facilitate financial users for a better decision making. Therefore, disclosure requirements
regarding these cost centres seem reasonable as well. (Management approach to segment reporting)Advocates of the management approach argue that the information which is
reported internally is likely to be of relevance to external stakeholders in making economic decisions. Using the management approach to segment reporting, the way in which internal
segments are identified and the way in which accounting variables are measured for internal reporting purpose are also used to prepare segment reporting disclosures. Senior management
and the board presumably uses internal information to evaluate past performance and to allocate resources within the firm. Their knowledge of the business should be reflected in the way
that they “tailor” the internal measurement systems for this purpose. Whilst allowing firms to use non-standard measures of performance hampers comparability, it could be argued that
this is offset by the increased relevance of segment reporting data presented using the management approach.
Foreign currency: indicators: 1. Sales price for output(customer pay and settle their accounts 9(ai)); 2.competitive forces& regulations 3. Labour and materials(pay suppliers goods and
services9 (b)). 4. Financing(loan payable in USD 10a).5. currency in which receipts are kept(receipt from customer will be kept in US bank10b). other implication: 1. NYC generate
income in local currency 11a 2. Only transaction with parent appears to be loan 11b 3. Cash flows from NYC do not directly affect cash flows of parents, also from other entities 11c 4.
NYC can services it debt independently. 11 d. Question 10.9 (Economic and Accounting Measures of Exchange Gains) A foreign currency translation gain will generally arise where
the foreign currency appreciates and the opening net assets of the foreign operation are positive. The opening net assets at the closing exchange rate is a greater amount (expressed as
units of the functional currency of the group) than the opening net assets translated using the rate as at the beginning of the period. This gain will be adjusted for the effect of changes in
net assets (including total comprehensive income for the period and dividends paid). If indicators are mixed, give propriety to indicators per para.9 in exercising professional
judgement (AASB121.12)
Equity accounting: Apply equity accounting in CFS, AASB 128(17), Measure at cost or fv in separate FS of investor AASB127(10), If no consolidation ,use equity accounting in SFS.
Objective: to provide useful information about performance of an investment in another entity/ a clever accounting technique for providing a more relevant measure than cost in the
absence of control or a clear market value. Advantage and disadvantage of equity accounting:Equity accounting adjusts cost for the investor’s share of changes in net assets recognised
by the associate. However, under current accounting standards, the alternative treatment is fair value/cost because the investment would otherwise be classified as an available-for-sale
(AFS)/Held-to-maturity financial asset under AASB 139. Fair value is a more comprehensive measure of the value of the investment because it is not restricted to amounts recognised by
the associate in accordance with accounting standards. Fair value can capture internally generated intangibles and goodwill that would not be recognised in the books of the associate. If
the investment is accounted for as an AFS financial asset the change in fair value is recognised directly in equity and dividends received are recognised as income in profit or loss. If the
investment performs well, a disadvantage of the equity accounting method is that it may yield a lower carrying amount for the investment than would arise if it were classified as an AFS
financial asset and measured at fair value. The higher carrying amount, in turn, may improve gearing. On the other hand, one advantage, from the perspective of the preparer, of
classifying the investment as AFS is the greater potential to manage earnings, to the extent that it is able to influence the associate’s dividend policy. This advantage of classification as
AFS reflects a disadvantage of classifying it as an investment in an associate and applying equity accounting. Additional disclosure requirements apply under AAB 128 Investments in
Associates. From the perspective of the preparer, this may be a disadvantage because additional disclosures are potentially costly. However, an advantage of the equity accounting
method is that to the extent that the increase in net assets of the associate reflects profit of the associate, the investor’s share is accounted for through profit. By contrast, the change in fair
value of an available-for-sale financial asset would be recognised directly in equity, until such times as the investment is sold or otherwise derecognised.
JOINT VENTURE Why joint ventures? 1 the scale of the required investment may be beyond the entity’s financial means. 2 special skills may be required to manage and operate the
project. 3 risk sharing, particularly if the project involves substantial commercial risk.4 a foreign government may require that a foreign entity or the foreign government itself be a partner
to a business venture located in its jurisdiction Why jointly controlled operation/asset? 1 main advantage: the degree of flexibility, only need to comply with specific terms and
conditions of the contracts that comprise the joint venture agreement. 2 potentially easier to organise a relationship with another venturer. 3 expose lower level of potential liability
compared to the partnership.Why jointly controlled entity? 1 in the form of a company offers the protection of ‘limited liability’. Sometimes it is not an effective commercial
arrangement, marketing and selling activities are fragmented because it’s the responsibility of the separated venturers. This sort of fragmentation makes no difference if the product is
homogenous and markets are close to perfect. 2 preferred by management because of the relative appeal of the equity method of accounting. The equity method has the same
statement of comprehensive income effects as a proportional consolidation without requiring any additional liabilities to be recognised in the statement of financial
position.Evaluation of the line by line method . Against: A venturer’s interest in a asset does not meet the definition of asset due to control issues. Only controls an interest in an asset.
Can distort the venturer’s financial statements as controlled assets are combined with joint venture assets and effects ratios. For: imposes financial performance of joint venture into
venturer’s financial statements. For example, total cost of production for a process. Reflects the substance and economic reality of a venturer’s interest in a joint venturer.

Joint controlled entities:1, separate entity,2. Corporate form is often used when liited liability is an issue as a jointly controlled coy can enter into contracts in its own name & borrow
funds. 3. Usually share profit of the entity but ventures’ can share in output 4. Jointly controlled entity maintains accounting records to prepare its own F/S. Joint controlled operations:
1. Separate entity is not formed.2. uses ventures’ assets & resources 3. Each venturer undertakes their own borrowings. 4. Jointly controlled operation maintains accounting records to
prepare F/S for internal management purposes only. Joint controlled assets: 1.Joint ownership of assets dedicated to a joint venture as each venturer has control over its share of the
asset’s future economic benefits 2. Venturers are entitled to share of output from the asset. 3. Venturers re responsible for a share of the asset expenses

Joint controlled criteria: specific economy activity, contractual agreement connecting venturers, venturers share both financial and operating decision, unanimous decision making