liabilities for long- term employee benefits such as long service leave are recorded at discounted present value – Per AASB 117 Leases, finance lease liabilities are values using present value techniques • AASB 101 Presentation of Financial Statements requires that liabilities be classified in the statement of financial position: – by nature – sub-classified as current or non-current Measurement and classification - liabilities 66
Australian School of Business A residual, so no separate measurement methods AASB 101 Presentation of Financial Statements requires that equity be classified in the statement of financial position by source (contributed or earned) Major components are: – Contributed equity – Reserves – Retained earnings Measurement and classification - equity 67
Australian School of Business • Under AASB 118 Revenues , revenue is measured at the fair value of consideration received • AASB 118 requires that revenue be classified by nature • Major components are: – Revenues from sale of goods – Revenues from services rendered – Interest, royalties and dividends Measurement and classification - income 68
Australian School of Business • Most expenses are measured based on the cost of consumption or loss of economic benefits in the current period • AASB 101 Presentation of Financial Statements requires that expenses be classified in the Statement of Comprehensive Income by nature or function Measurement and classification - expenses Nature vs function classification discussed in more detail in ch 13 69
Australian School of Business • Represent a distribution of profits to shareholders • Dividends can only be paid once the company satisfies a test of solvency • Power to declare dividends at any time rests with directors (s254U) • Dividends may be in the form of cash, bonus shares or assets • Constitution usually provides for the declaration of two types of dividends: – Interim (declared and paid during the year) – Final (declared this year, paid next) • Commonly expressed as a certain amount of cents per share Dividends 70
Australian School of Business When does a legal debt arise for dividends? • If constitution states that once declared a dividend is not subject to further approval – a legal debt arises on declaration – dividend payable recorded at date of declaration • If constitution requires approval by shareholders at a meeting of shareholders – a legal debt arises on the approval by shareholders – dividend payable recorded once approval obtained • If there is no constitution/constitution is silent – a legal debt arises on the nominated payment date – no dividend payable recorded Dividends 71
Australian School of Business INTERIM DIVIDEND PAID Dr Retained earnings $x Cr Cash $x FINAL DIVIDEND DECLARED Dr Retained earnings $x Cr Dividend payable $x • Dividend paid/declared accounts are often used in the above entries and closed to retained earnings as part of the annual closing process •
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