Accounting Business Reporting for Decision Making

CHAPTER 5 Balance sheet 209

leave and sick leave entitlements. Given that most employment awards entitle the employee to

long service leave after 10 or 15 years of service, apply the definition and recognition criteria for

liabilities to suggest when an entity should start providing for long service leave.

5.36   LO3

Read the following extract from the 2015 Preliminary annual report of Seek Ltd.

Critical accounting policies

The preparation of financial statements requires the use of certain critical accounting estimates. It also

requires management to exercise its judgement in the process of applying the Group’s accounting pol-

icies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and

estimates are significant to the financial statements, are disclosed in the relevant notes.

Source: Seek Ltd 2015, preliminary annual report, p. 6.

Required

Locate the most recent annual report for Seek Ltd and identify the accounting areas that manage-

ment believe have the greatest potential impact on its consolidated financial statements due to its

associated assumptions and estimations. Select one area and explain the significant judgement and

estimation involved in measuring the item for balance sheet purposes.

Problems

 BASIC |   MODERATE |    CHALLENGING

5.37 Analysing retained earnings  LO6

Coconut Plantations Pty Limited had the following assets and liabilities at financial year end.

31 December

2017

31 December

2016

Assets

Cash at bank

Inventory

Prepaid insurance

Accounts receivable

Land, buildings and equipment (net)

$ 37 200

175 000

4 500

93 010

359 500

$ 45 600

60 000

1 000

23 110

229 500

Liabilities & equity

Accounts payable

Accrued expenses

Income tax payable

Bank loan

Share capital

Retained earnings

$ 42 500

7 500

98 400

131 000

200 000

?

$ 3 300

700

45 000

20 000

200 000

?

Required

a. What is the balance of retained earnings as at the end of the two financial years?

b. If the company reported profit after tax of $229 600 for the year ended 31 December 2017 what

amount (if any) of dividends were proposed and paid during the year?

5.38 Analysing a balance sheet  LO8, 9

Select an Australian Securities Exchange (ASX) listed company and visit its website to access the

latest annual report. From the company’s balance sheet identify:

a. The company’s total assets

b. The percentage of total assets that are:

i. current assets

ii. non-current assets