Financial Institutions, Ethical Investment, CSR, Intangible Assets, Taxes, Heritage Assets, Biological Assets

Financial Institutions’ Role in Climate Change

1. Initially many Financial Institutions have been actively participating in showing leadership in the field of climate change. Some of them have been giving capital to the low carbon and climate resistant activities. Investors see an opportunity to work on these climate issues and to include it into main stream financing (Deegan 2013). It can be done by formulating national and international policies which can make industries to be more critical, long-lived and transparent. After this the aim is for development of financial industry to capacitate it into assessing the opportunities and risks involved in the climate change. By coming into consensus about investing in the climate change collaboration of all the like-minded investors can prove vital to unlock the capital flows. As climate change is proving to be a risk and is affecting global economy and hence the investment sector.

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Ethical investment which is also termed as Socially Responsible Investments has developed since last decade. Investors are seen reluctant in investing in ventures of arms or alcohol which are of hostile nature. Now investment is being done by screening positive and negative criteria which are environmental protection, ethical employment, recycling and conservation. Ethical investors are practicing the fondness of the best-of-sectors and developing a green investment system (Deegan 2013). They tend to create a better environmental record for their investments. Ethical investors follow activism in which they convince each other to make positive amendments in the type of their investments. It is not that they restrict any investment strategy but tend to modify it for gaining sustainability in the business operations.

2. Since 1980’s companies are bound to fulfill responsibilities towards society and environment. As a chief financial officer of this organization and also considering the cost benefit analysis of the company. As the company is providing printing services and due to chemical and noise pollution social and environmental surrounding is affecting adversely. But on the other hand, company has provided large amount of employment to the local people, so there are no legal compliance related to these issue.

As every organization required to do some amount of CSR activities to show their responsibility towards environment and society. Our company should initiate some kind of health awareness program to cope up with different types of hazards occur due to chemical or noise pollution. It is an expense for the company for short span of time but in a long run, it will be beneficial for the organization and surrounded population.

Ethical Investment Approach for Environmental Protection

As we can make CSR committee for taking care these activities and also they will be accounted by taking all the legal permission from the government authority as per requirement and purpose. Financial terms it is a bulk expenditure activity for the company but it is should mandatory to maintain hassle free work environment for employee and nearby people too.

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Company should publish a sustainability report every year with the revised policies and procedures as per the changes done by the government or legal authorities. All the CSR activities should be done under GRI norms.

3. a) The $50,000 has been spent on development of general understanding of water flow dynamics would be considered as research and will be written off as incurred.

b) The $30,000 spent for the purpose of knowledge gathering of surfboard which is expected from local surfers will be considered as research and would be written off as incurred.

c) There are $90,000 and $1, 90,000 have been spent on testing and refining and prototype has been considered as development expenditure will be capitalized.

4. a)

Particulars

$ Million

Patents at director’s valuation

160

Less. Accumulated amortization

-40

120

Trademarks, at cost

15

Goodwill. At cost

50

Less. Accumulated amortization

-10

40

Brand Name

100

License, At cost

10

Less. Accumulated amortization

-1

9

Patent acquired cost is $80 m8illion for 16 years = $80/16 = $5 million

Paid for 4 years = $5 million*4 = $20 million.

According to AASB 138, intangible assets can be recognized in the financial statements of the organization in certain scenario,

  • Future economic benefits from the recognized assets are probable
  • The cost of the asset can be measured reliably

b) According to AASB 138 carries intangible asset cost less accumulated amortization or accumulated impairment losses at a revalued cost. In the above case analysis, it is found that patents were acquired at a cost of $80 million which is revalued as per standards later on. It is estimated that life of the machinery will be 16 years in which 12 years is still left.

According to AASB 138, the revaluation should be considered on the basis of fair valuation of asset. If the products are homogenous and buyers / Sellers are easily available in the market and also price of the goods are easily available in the market.

Patent at cost-Accumulated amortization (4 years out of total 16 years life)

Net carrying value (80 million-20 million =60 million)

Trade Mark

It is recognized that trademark is one of kind of intangible assets which can be renewed indefinite times. The transaction cost is recognized as registration fees, which is yearly expensed but recognized after 5 years. According to AASB 138, Intangible assets with indefinite useful are not subject to amortize, there are also possibility that trademark can be renewed indefinitely will be considered as cost less impairment losses. Initially the intangible assets are recognized as expenditure but later on it is a part of cost.

CSR Activities for Environmental Protection

Goodwill

As per AASB 138, goodwill is one the intangible asset which has been purchased and amortized on the basis of straight line method. Goodwill is only recognized when it is externally acquired by the organization. It is always recognized the goodwill at cost minus accumulated amortization.

5. a)

Company Act

IT Act

Difference

Tax @30%

DTA or DTL

Year

Machinery value

Depreciation 40%

Machinery Value

Depreciation 60%

2015

 $     2,50,000.00

 $       1,00,000.00

 $   2,50,000.00

 $       1,50,000.00

 $ 50,000.00

 $ 15,000.00

DTL

2016

 $     1,50,000.00

 $          60,000.00

 $   1,00,000.00

 $          60,000.00

$0.00

 $               –  

NA

2017

 $        90,000.00

 $          36,000.00

 $      40,000.00

 $          24,000.00

-$12,000.00

 $ -3,600.00

DTA

2018

 $        54,000.00

 $          21,600.00

 $      16,000.00

 $             9,600.00

-$12,000.00

 $ -3,600.00

DTA

2019

 $        32,400.00

 $          12,960.00

 $         6,400.00

 $             3,840.00

-$9,120.00

 $ -2,736.00

DTA

Particulars

Dr

Cr

Profit &loss A/c

 $          15,000.00

Deferred tax liability

 $      15,000.00

 b) Balance of deferred tax assets 30 June 2018

Particulars

Dr

Cr

Deferred tax assets

 $          -3600.00

Profit &loss A/c

 $      -3600.00

6. Journal entries to account for tax in accordance with AASB 112

Details

Debit

Credit

$

$

(i)

Income tax expense

24 000

                Tax payable

24 000

(ii)

Profit and loss

24 000

                Income tax expense

24 000

(iii)

Profit and loss

56 000

                Retained earnings

56 000

Fair valuation of the plant is 4, 00,000 less accumulated depreciation 80,000 = 3, 20,000

Total tax payable = (80,000*30%) = 24,000

Retained earnings = (80,000-24,000) = 56,000

7. Heritage assets help to make the economy of any place stronger. If they are considered as a liability then it is wrong. Heritage assets have far more significance than just being a tourist spot. It helps in generating a number of jobs around it as visitation of people increases. As the jobs are created it positively impacts the social and economic standard of that place. It may be argued that if there is a heritage asset it needs to be maintained frequently in which cost is incurred (Deegan 2013). Private investors, government and municipality are the prime investors in the upkeep of a heritage asset. But once proper investments are done it starts to giver handsome returns the moment it becomes a famous tourist destination. Heritage sites are seen with old shops and restaurants which becomes the centre of attraction for tourists. They visit there and shop as a result the owners of shops get richer. It is an established fact that people are more inclined towards their legacy which makes them to visit these places. Old heritage buildings are being converted into offices where huge number of people comes to work. Due to establishment of offices the entire area becomes commercialized and hence adds to the economy of that place (Deegan 2013). It is highly unlikely to say that heritage assets are not assets but liabilities as construction of buildings like the old ones are near to impossible in the present date. It reduces the cost of construction of another building. The cost of maintenance is much less than constructing a new building from the scratch.

8. a) Cost incurred in maintaining biological assets 30 June 2019

Particulars

Dr

Cr

Expenses A/c (Fertilizer, salaries and etc.)

50,000

Cash/Accounts Payable

50,000

As per the accounting standards and policies it is mentioned that all the expenses which are incurred for maintenance the biological assets are expensed as incurred and are not capitalized. According to AASB 141, the amount which is capitalized for the measurement of biological assets on initial recognition at the end of a reporting period, when the fair value of the product is lesser than estimated costs to sell.

b) Harvesting of agriculture produce 23 June 2019

Particulars

Dr

Cr

Inventory

2,20,000

Gain arising on recognition of harvested apples

2,20,000

The above mentioned journal entries considered under AASB 141, paragraph 13 an 28.

As per paragraph 13 any agriculture harvested products from an entity’s biological assets shall be measured on the basis of their fair value less estimated costs to sell at the point of harvest.

Accordance to paragraph 28, any losses or gain arises on initial recognition of agricultural products at fair value less estimated costs to sell shall be included in surplus or deficit for that particular accounting period.

Particulars

Dr

Cr

Picking and packing cost

15,000

Cash

15,000

  • The packaging and produce picking costs shall be treated as a cost of the period but not considered as a cost to sell, so it should be offset against inventory.

c) Sell of the agriculture product 23rd June 2019

Particulars

Dr

Cr

Cash A/c

2,10,000

Sales A/c

2,10,000

Particulars

Dr

Cr

Selling cost

3,000

Cash Receivable

3,000

 30 June 2019

Particulars

Dr

Cr

Cost of goods sold

21,000

Inventories

21,000

As per the record the total sale price of the produce is 2, 10,000 in the market in terms of cash transactions. Whereas on the other hand, selling cost of the agriculture produce is equal to 3,000 and the 10% of the total produce has been considered as inventories at the end of the 30 June 2019.

d) Changes in fair value of the biological assets between the ends of the two reporting periods

Particulars

Dr

Cr

Mango (Produce)

70,000

Revaluation (Surplus)

70,000

  • The changes in the mangoes fair value will be considered as bearer plants and would be accounted as AASB 116. It is suggested that the revaluation model has been adopted on behalf of cost model. Whereas we can ignore the taxation related effects and procedures.

9. Implications passed for the quantitative tests given in the paragraph 13 of AASB are following:

The stated revenue of sales, intersegment and external customer sales, and even transfers amounts to more than ten percent of all the revenues combined which may be internal or external of the operating segments (Deegan 2013).

  • The absolute amount as stated is profit of ten percent of the combined profit which is reported for all segments that are operating and did not record a loss.
  • Its asset which is declared is ten percent exceeding the profits of all combined assets of all the segments that are operational.
  • If the entire revenue listed in the segments of operation makes it to less than seventy five percent of the companies of revenue then added operating segments can be recognized as reportable segments. It is applicable if they do not comply with standards given in paragraph 13.
  • If management agrees that reportable segment identified as segment of operation just before significance of continuation then that segment’s information should be reported individually in real-time even if it does not comply with the standards given in Paragraph 13 of the quantitative tests.

Operating segments which are recognized as reportable in the present time complying with the quantitative threshold, the fragment data for a previous period accessible for comparisons should be repeated to show the new reportable fragment as an individual fragment, even if that fragment does not comply the criteria mentioned in Paragraph 13 for reportability.

10. Profit and loss segment reporting

Profit and loss A/c before income tax by operating segment

Segments

Profit

Losses

(Total*10%)

Status

Entertainment

100

14

Reportable

Clothing

20

14

Reportable

Food

10

Agriculture

20

14

Reportable

General corporate expenses

10

Total

140

 Revenue Test

Revenue Test

($000)

Segments

Revenue

(Total*10%)

Status

Entertainment

650

66%

Reportable

Clothing

80

8%

Food

200

20%

Reportable

Agriculture

50

5%

Total

980

100%

Reportable

 Assets test by operating segment

Assets by operating segments

($000)

Segments

Assets

(Total*10%)

Status

Entertainment

800

59%

Reportable

Clothing

300

22%

Reportable

Food

100

7%

Agriculture

110

8%

General corporate expenses

50

4%

Total

1360

100%

Reportable

Accordance to the AASB 8 disclosure notes, if amount of a particular segment is equal to or greater than 10% of its total values it is reportable. As we can see above in the profit and loss reporting entertainment, clothing and agriculture is reportable. In the revenue section entertainment and food segments are reportable and last but not the least assets test shown that entertainment and clothing segments are reportable.

References

Baker, R. E., Christensen, T., and Cottrell, D. 2012. Advanced financial accounting (9th ed.).New York: McGraw-Hill Irwin. ISBN: 9780078110924

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.