2105AFE Introduction To Business Law

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2105AFE Introduction To Business Law

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2105AFE Introduction To Business Law

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Course Code: 2105AFE
University: Griffith University

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Country: Australia


Question 1:
In the Mabo case, native title was being claimed over a particular island. What is the name of the island? What is the name of the Aboriginal peoples who occupy that island?
Question 2:
In the Mabo case, the claimants were successful with their claim. What were the claimants entitled to do with the land? According to Justice Brennan’s judgement in the Mabo case, when will the foundation of native title have disappeared?
Question 3:
As explained by Graeme Neate, President of the National Native Title Tribunal, what is the difference between “land rights” and “native title”?
Question 4:
What was the name of the Act that was introduced after the Mabo decision? What was decided in the Wik case?
Question 5:
The Yorta Yorta people were among the first to lodge a native title claim after the Mabo decision. How much time passed between the time the claim was lodged and when the final decision was handed down? Why were they unsuccessful?


Analysis of CBA Annual Report
Question 1

The income tax included in the income statement comprises of corporate income tax expense which is $ 3,960 million and the policyholder tax expense which is $ 32 million
The income tax expense has been reported by CBA bank as a current liability. This is because it is an expense which is supposed to be paid in a period which is less than one year(“Annual reports”, 2018).
The temporary difference in accounting can be brought about by differences in the amount of tax expenses in a particular income statement. Temporary accounts occur as a result of differences between the taxable income and the pretax book income. The difference is referred to as the timing difference(Abdallah, 2017). Items which have resulted to temporary accounts can be attributed to be the rental income and deferred tax liability.
Income tax is reported in the income statement as an expense. CBA bank in the financial year 2017 paid total income tax of $3992 million (“Annual reports”, 2018).
Deferred tax assets arise when revenue for the tax has already been paid but has not been used. Deferred tax liability arises when the company has to pay tax which is due. In the year 2017, CBA had the deferred tax asset of $ 962 million and the deferred tax liabilities of $ 1780 million.
Current tax liability may not be equal with income tax expense for the period because current tax liability may have been settled partly with the deferred tax assets hence reducing the total amount of the tax liability. Income tax expense, on the other hand, comprises of all the income tax that has been incurred by a company in the particular period of income(Shirkar, 2018).  In the case of CBA bank, the current tax liability is $ 1450 million and the income tax expense is $ 3960 million.

Question 2

The functional currency is the currency of the economy in which a company operates. CBA’s functional currency is in Australian dollars. The guidelines a company will consider in determining its functional currency includes: the currency   that is influences the prices of  products and services, consider the currency which influences labor, raw material and other costs that are used in providing goods and services, consider the currency by which the financing operations are generated, Consider the currency that affects the economic transactions of an entity and lastly consider the currency of the country  which determines prices of goods through its competitive prices and also regulations.
The foreign currency is expressed in the form of functional currency where the entity operates at the date by which the translation is made using the prevailing market exchange rates in the exchange market and is the recorded in the statement of comprehensive income. The assets and liabilities which resulted from the translation of currency by CBA were reported using the spot rate and the difference was reported in the income statement. CBA recorded all the translation exchange difference in the translation reserve account. It also translated the revenues and expenses using the average rate of exchange for the period that ended 30thJune 2017.
Foreign currency risk is the risk that there is a possibility of a difference between the actual amount in the financial statements and the translated figures hence affect the cash flows of a given reporting entity(Adams & Hartsfield, 2010).  Steps taken by CBA to manage the foreign exchange risk includes; Foreign currency is being translated by managers using prevailing rates in the dates in which transactions take place, managers’ report the gains and losses from those translations in the statements of comprehensive income and lastly the exchange differences that arise from such translations are accounted for as distinct commodities of equity.
The balance of the foreign currency translation reserve arises from either loss or gain from the statement of cash flow. CBA bank reports this as reserves and recognized those gains or losses in the statement of cash flows.
Investment in subsidiary was A$ 310000

Current assets
      Inventory                                                                                  205000                  15375
      Monetary assets                                                                      195000                  146250
           Total current assets                                                                         400000                161625
Noncurrent assets
 Land                                                                                              100000                   85000 Buildings                                                                                       120000                   10200
    Plant and equipment                                                                  110000                     93500
Accumulated depreciation                                                        (10000)                   (8500)                     Deferred tax asset                                                                         10000                      8500
Total noncurrent assets                                                                    330000                   188700
Total assets                                                                                         730000               350325
Dividends paid                                                                                                                 29750
Current liabilities
             Current tax liability                                                                     70000                     59500
             Borrowings                                                                                   50000                     42500
            Payables                                                                                        100000                   85000
       Total current liabilities                                                                     220000                   187000
                 Noncurrent liabilities
            Borrowings                                                                                   150,000                 127500
    Total liabilities                                                                                     370000                  314500
Net assets                                                                                                      360000         331287.5
Share capital                                                                                                310000              263500
 Retained earnings                                                                                        50000                  42500
Total equity                                                                                                   360000             306000
Statement of profit or loss and other comprehensive income
For the year ended 30th June 2017
 S $                          S $                  A $
Sales revenue                                                                                          1200000           1558442
Cost of sales:
Purchases                                                                 1020000
Ending inventory                                                         20500                   815000           627550
Gross profit                                                                                                385000           930891
Selling                                                                    120000
Depreciation                                                            10000
Interest                                                                    20000
Other                                                                       90000                          240000            184800
Profit before income tax                                                                              145000            746092
          Income tax expense                                                                             60000              4260
     Profit for the period                                                                                  85000             741832
Question 3

Intangible assets are those assets which are non-monetary for example patents, customer lists, licensing, mortgage servicing, important quotas among others. Intangible assets do not have any physical substance. They are usually measured at cost using the revaluation method. By 30thJune 2017, the intangible assets of CBA bank were $ 10,024 million which represent a portion of 10.27 per cent of the total assets that are owned by CBA. CBA recognizes the intangible assets only if it is probable that the asset will produce economic benefit. The bank tests the impairment value of intangible assets when they indicate to have higher carrying value than their actual recoverable value.
According to the CBA annual report for the year 2017, the issues of impairment are only raised in circumstances where the bank does not expect to receive all its expected Cash inflows. In this case, CBA bank conducts an assessment of those equipment’s either individually or collectively. In this bank, the credit losses are brought about majorly by loans and some of the credit losses which arise from some other credit instrument offered by the bank, for example, the bank acceptances, contingent liabilities among others. CBA bank in the financial year 2017 reported an impairment loss of $ 38744 million(“Commonwealth Bank | CBA | Depreciation”, 2018). The assets which contributed to the impairment loss include the following.

Loans and receivables, these items of the balance sheet were assessed collectively for impairment purposes which were conducted in order to decrease the carrying amount of comparable loans and receivables to values which the bank estimates it will be recovered. The assessment of these two items in the balance sheet was done in a series of procedures, estimates and also judgments. The bank also employed the use of statistics in coming up with the exact recoverable values, they used the history of loan defaulters, the size diversity and the design of the portfolios which were taken into account. The managers also put into consideration the performance, economic environment and the quality in order to come up with the impairment loss of loans and receivables.
Other financial assets were assessed for impairment individually and this was done by taking the carrying amount of the asset subtracted from the expected cash flows and the difference discounted using the effective interest method (Park, 2017). The short-term differences were not discounted. Other impairment losses were as a result of financial instruments and guarantees
The impairment costs are recognized in the financial statements expenses because they result to cash outflows from the business. They are also reported as losses because the business is not able to recover all its expected profit from loans and receivables hence making losses instead of profits.

Revaluation is a technique which is used to calculate the level of depreciation in all the parts of an equipment or types of equipment of a firm. Companies usually group together the items that seem to have a single value and revalue them at the end of a particular accounting period in order to come up with a certain specific depreciation amount. The revaluation amount is the difference between the fair market value of an asset and the depreciation which mostly results in profits(Sohn, 2009). The CBA bank in the financial report for the year ended 30th June 2017 did not report any assets revaluation amount. In order to arrive at the depreciable value. Take the cost of valuation during the beginning of the year then add to the purchases done during the year then subtract the valuations during the year and the end value will be the revaluation amount. The journal entries will be as follows.

Debit the asset account (with the revaluation increase) $ XX
 Credit the revaluation account (with the same amount) $XX.

The accounting standard that was used in the financial year 2017 by CBA bank was the Australian Accounting Standards Board (AASB) 16. This standard amends accounting for leases. This standard requires that all leases should be recorded in the financial statements(Stevenson, 2012). Leases were classified as either operating leases or finance leases. All the substantial risk and benefits of the lease were transferred to the lessee with regards to the finance lease but in the operating lease, the benefits and risks remain with the lessor. The income from the finance lease reflected the (ROI) return on investments.

The main considerations while classifying a lease include; the transfer of possession of the lease from the lessor to the lessee, the purchase of options in the lease agreements, consider the remaining economic life of the leased asset, the anticipated terms of a particular lease, also consider the lease payments, the fair market value of the leased asset and lastly consider the lease implicit rates (Hussey, 2017).

Adoption of AASB 16 is likely to have material effects to the company reporting especially on the side of the lessee because this standard changes the rules of reporting in the books of the lessee. In reporting the lease in the books of the lessor, the accounting rules do not change hence the effect will be small(He, Evans & He, 2016). This standard removes the difference that exists between an operating lease and finance lease hence this will bring about material effects in the company reporting.

Abdallah, A. (2017). The Conformity Level of Income Tax Accounting in Jordan with the Requirements of the International Accounting Standard IAS (12) in Terms of Taxable Temporary Differences’ Recognition. SSRN Electronic Journal. doi: 10.2139/ssrn.3221069
Adams, J., & Hartsfield, F. (2010). Foreign currency exchange rates and mutual fund cash flows. Journal Of Asset Management, 11(5), 314-320. doi: 10.1057/jam.2009.37
Annual reports. (2018). Retrieved from https://www.commbank.com.au/about-us/investors/annual-reportsv.html
Commonwealth Bank | CBA | Depreciation. (2018). Retrieved from https://tradingeconomics.com/cba:au:depreciation
He, L., Evans, E., & He, R. (2016). The Impact of AASB 8Operating Segmentson Analysts’ Earnings Forecasts: Australian Evidence. Australian Accounting Review, 26(4), 330-340. doi: 10.1111/auar.12132
Hussey, R. (2017). Accounting for Leases and the Failure of Convergence. Athens Journal Of Business & Economics, 4(1), 7-24. doi: 10.30958/ajbe.4.1.1
Park, H. (2017). Intangible assets and the book-to-market effect. European Financial Management. doi: 10.1111/eufm.12148
Sohn, J. (2009). Consideration to the Depreciation Method using Accumulated Depreciation Rate Function. The Journal Of The Korea Contents Association, 9(1), 304-311. doi: 10.5392/jkca.2009.9.1.304
Stevenson, K. (2012). The Changing IASB and AASB Relationship. Australian Accounting Review, 22(3), 239-243. doi: 10.1111/j.1835-2561.2012.00182.x
Shirkar, W. (2018). Deferred Tax Assets and Deferred Tax Expense Against Tax Planning Profit Management. Shirkah: Journal Of Economics And Business, 2(2). doi: 10.22515/shirkah.v2i2.166

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