Sherbet Ltd makes an offer of 1,000,000 ordinary shares to the public.  In its prospectus it notes that the shares are to be issued at $1.50 per share.  The shares are to be paid in instalments.  The first payment, to be made on application is $0.80 and a second amount of $0.20 will be due on allotment.  Remaining monies will be called at future dates to be determined.


Applications commence being received on 1 August 2011 and the closing date for applications is 31 August 2011.  By the closing date, applications have been received for 1,500,000 shares. To deal with the oversubscription, Sherbet Ltd has decided to issue shares to all subscribers on a pro rata basis.  Shares are allotted on 1 September 2011.  All amounts due on allotment are paid by the due date.


A first call for $0.10 is made on 1 November 2011, with the amounts being due by 30 November 2011.  A second and final call of $0.40 is made on 1 December 2011.  Shareholders of 100,000 shares fail to pay the amount due on the call by the due date and on 31 December 2011 these shareholders have their shares forfeited.


On 1 March 2012 an interim dividend of $10,000 is declared by directors for the remaining shareholders.  This dividend is paid on 31 March 2012.

a)    Prepare the accounting journal entries necessary to account for the above transactions and events.                                                                                                                                                              (10 marks)

b)     Explain what a   ‘General Purpose Financial Report’   is and their purpose in financial reporting. (5 marks)

c)     Describe the role of, and the interaction of the ASIC, the AASB and the ASX in the regulation of financial reporting in Australia.  Include in your answer an outline the regulatory document each of these bodies



For an effective functioning of the company the financials of the company play a major role. It is always essential to understand that company must maintain record of all the dealings it makes, but there is a need of a proper format to be followed for maintaining these such that there is consistency of the data when referred for future purpose such as return preparation or for payment of tax.  For this purpose we need methodology to be used for preparing the report, such methodology and the reports used are the financial reports. If we term ACCOUNTING to be language of FINANCE, (Lasher, 2008, P.9), Financial Reporting is termed to be communication of financial information to the consumer such that he could access and valuate his returns by investing in a particular company, it also helps in financial and management decision making, (Wild, Shaw, & Chiapetta, 2009, p. 681). These communications include different financial statements like, income statement, credit statement, balance sheet, cash flow reports, ledgers and notes on the same. These also include press notes, auditor’s reports, and statements from SEC etc., all these financial statements can be termed as financial reports and communicating these reports to the public as well as the governing authority and the company directors is financial reports. All the financial reports or account and data they present are governed under the norms of Securities Exchange Commission (SEC), Financial Accounting Standard Board (FASB), International Accounting Standard Board (IASB), (Wild, Shaw, & Chiapetta, 2009, p. 9). All these reports and data are used such that we are in the same page and there is consistency followed in the reports.

Under corporate scenario the financial reports are viewed by manager, creditors and the investors, for example the manager refers the financial reports for the purpose of decision making. The creditor uses the financial reports to determine what risk it would incur in loaning a particular company, the creditors cannot put them in trouble by blindly investing in all the available companies. Even these reports help the investors in knowing where to invest their money to incur good returns.

Financial reporting helps the company in preparing the annual reports of the company, investor reports and the shareholder’s reports. This reporting is very essential in analyzing the value of shares of the company as given in the current case where we are advised as to the how the company values it shares and how to make allotment of the valuation made on shares. Here we understand that the company plans to allot value of 1,000,000 shares for $1.50 per share in two allotments, the basis for valuating these shares at $1.50 is from the financial reports prepared by the accountants of the company as discussed above. As per the facts of the case the company as to prepare the financial reports for offering shares to the public, and even the value of the shares through journal entries and it has to prepare the reports relating to the dividend value and any loss or profit incurred in the subscription of sales. These journal entries passed are the primary basis for the financial reports.

Financial reporting helps in generating complex financial reports, maintaining budget of the company and tracking its financial performance under the regulatory requirements stated in all the regulating authorities such as SEC, IASB etc.

General purpose financial reporting means preparing those financial reports that are intended to meet the information needs of the common user who are unable to generate the reports which satisfy and meet their specific usage (Sec 5, Objective of General purpose financial reporting, 1990). Therefore, as per the given statement it can be understood that purpose behind the financial reporting is meeting the common needs of the public, managers, other officials who are not able to produce a statement by giving a command. The general purpose financial reporting focuses on providing common information required to people other than accountants. These purpose also includes generating information required by the auditors for auditing purpose, they help the auditor in assessing the returns of the company and they even act as an evidence based on which the auditor can complete his auditing. It is encompassed by business and non-business entities, and also covers reporting by all types of reporting entities such as the legal, administrative, or economic. General purpose financial reporting is a means of communicating the reliable information of the reporting entities to the public basing on their needs. These needs depend on the performance of the reporting entities and the interest of the public in retrieving the financial report of a particular field. This reporting also helps in enabling the mechanism of the managements and the governing bodies in discharging their accountability.



  1. 3.        ASIC, AASB, ASX – interaction with each other, regulating the financial reporting in Australia.

Australian Securities and Investments Commissions (ASIC), Australian Accounting Standard Board (AASB), Australian Stock Exchange (ASX) are the different institutes in Australia which set accounting standards in Australia. These are formed and funded by the government. All the companies should abide by these standards for drafting their financial reports. The ASIC is responsible for enforcing the standards laid down by AASB under the corporation act. It is very essential board which sees to it that the standards of the board are followed by all the companies and it has all the powers to also refer certain companies as considerations to AASB. ASIC in interaction with AASB has the power to issue class orders, and provide certain relief and consideration under the standards of AASB. The AASB operates under the norms of ASIC as the other regulating bodies do. ASIC in relation to the financial reporting aims at improving the quality financial reporting such that the equities of the company are valued perfectly. As already stated in the prior answer financial reports are essential for assessing the finances of the company.

AASB is the boards which defines the standards and regulations to be followed by the companies in their financial dealings. They have to abide by all these standards and implementation of these standards is made through ASIC. The funding of AASB is done by the ASX along with other governing bodies. AASB lays down different standards such as presentation of financial statements as per the regulations of the Australian Equivalent International Finance Reporting Standards (AIFRS). It covers the areas relating to accounting concepts and conventions, different accounting policies, with information essential for comparison between the companies, and also checks that there is consistency maintained by the companies in drafting the financial reports. AASB requires the financial statement to include four statements with notes; these four statements are the operational, cash flow, balance sheet, and change in equity statement. (ASIC v Healey, 2011)

ASX deals with the equities of the companies it lists the transfer of equities of listed public companies. The ASX board deals mainly with the registered companies and regulates the financial statement of only the public limited companies. It is essential that before investing into a company the investors checks the financial report and as known investors invest mostly in public company because their shares are values to the public and their subscription is published in the prospectus of the company. ASX boards standardize the presentation of the equities of the company with principles which are essential for good corporate governance. Those principles include proper and timely disclosure of the facts, safeguarding the integrity of the financial reports, securing the rights of the shareholders, recognizing and managing risk and making required remunerations for the shares of company.

As to the given definition the ASIC, AASB, ASX are inter-related to each other and that they are essential to work in co-operation with each other, for their proper performance. The companies have to abide by the standards of these boards and in the given question we can state that the company in providing its financial reports had abided by the norms of ASIC & AASB. It followed the principles of ASX in subscribing its shares and in giving dividends to its shareholders. As we have understood the interrelation between the given boards in regulating the financial reports we will further provide a brief outline of the financial reports regulated separately under the given boards.

ASIC regulates the annual reports of the companies, it also constitutes minutes of the meeting, the advertising of the company such that there is no false and misleading statement given by the company for the demand of its product (CBP Lawyers, Regulatory Guide 234, 2012), licensing and registration of the company such that they can participate in the specific markets as per the needs of the company.

AASB regulates all the financial statements of the company as per the standards laid down by its council. The financial statements include journal entries, inventory statement, cash-flow statement, sale of fixed assets statement, operating statement, income statement, other provisions statement, profit and loss statement, balance sheet, as per the given question dividend distribution statement, statement of changes in equity. AASB also regulates the notes written along with the financial statements. It mentions the language and tone to be used and the format in a way such that regular person understand.

ASX which deals with the equities of the company and regulates the structure of the board, the foundation of the management, and the foresight to be maintained by the board for the development of the company, check the information provided by the companies and regulates when it has to be produced to the public, it also regulates the value of shares to be remunerated by the company in public entity (Corporate Governance Principles and Recommendations, 2007).

Above are a brief financial reports regulated by the ASIC., ASSB, ASX boards and it can also be concluded that financial element is very essential for communicating the information of the company and it is essential to regulate the same.



  • Lasher R William (2008), Practical Financial Management (5th ed.).
  • Thomson South-Western. Chiappetta, B., Shaw, K., Wild, J. (2009). Principles of Financial Accounting (19th ed.). McGraw-Hill/Irwin.

  • Financial Reporting and Analysis, The Standard for Enterprise Business Intellligence, Information Builders

  • ASX; Regulatory Guide 28 – Relief from dual lodgment of financial reports Chapter 2M — Financial reports and audit Reissued 31/7/2003 Previous version reissued 4/8/1999 and superseded 31/7/2003. See [SPN 61B] in the ASIC Digest on CD-ROM. From 5 July 2007, this document may be referred to as Regulatory Guide 28 (RG 28) or Practice Note 61 (PN 61). Paragraphs in this document may be referred to by their regulatory guide number (e.g. RG 28.1) or their practice note number (e.g. PN 61.1).$file/pn61.pdf


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