UNIT NAME: FINANCIAL ACCOUNTING
Assignment Information Semester 1 2016
Assessment 20% Submission Requirements.
This assignment is to be submitted before 11.59pm Friday 20th May in Week 11
Assignments are to be submitted by one of the following means;
DO NOT LODGE BY FAX nor EMAIL nor at LECTURER’S OFFICE KEEP A COPY
• The assignment must be lodged on or before the due date indicated in the assignment details. Submit your Assignment using PDF file format . Only word docs and/or Excel converted to pdf will be acceptable. Handwritten answers will be rejected.
• The assignment must conform to the requirements set out in this assignment
• The assignment must be lodged online via the ACT204 Learnline Assignment Lodgement link on the ACT204 Learnline site. Ensure your file is named using a file naming convention that allows the lecturer to identify to whom it belongs. Failure to use an acceptable file naming convention may result in your assignment lodgement being rejected.
• DO NOT LODGE VIA EMAILor FAX – assignments lodged by email or fax will not be accepted.
• KEEP A COPY – Ensure you have a copy of the assignment lodged. If you have submitted assessment work electronically please make sure you have a backup copy.
• Assignment lodgements will be acknowledged automatically on the Learnline site, on submission.
• DO NOT submit an assignment front sheet.
Resubmission
As a general rule resubmission of assessment items is NOT possible, however the Lecturer may ask for resubmission if it is deemed appropriate. Details for such resubmission will be made available by the Lecturer if and when the situation occurs.
University Plagiarism policy
Plagiarism is the unacknowledged use of material written or produced by others or a rework of your own material. All sources of information and ideas used in assignments must be referenced. This applies whether the information is from a book, journal article, the internet, or a previous essay you wrote or the assignment of a friend. Plagiarism policy is available at:
http://learnline.cdu.edu.au/studyskills/studyskills/avoidingplagiarism.html and
Student Breach of Academic Integrity Procedures https://www.cdu.edu.au/governance/doclibrary/pro-092.pdf
EXTENSIONS AND LATE LODGEMENTS
LATE ASSIGNMENTS WILL GENERALLY NOT BE ACCEPTED UNLESS AN EXTENSION TO THE DUE DATE HAS BEEN GRANTED BY THE HEAD OF SCHOOL.
Exceptions will only be made where assignments are late due to special circumstances that are supported by documentary evidence, and may be subject to a penalty of 5% of assignment marks per day. Partially completed assignments will be accepted with appropriate loss of marks for the incomplete portion.
Should students foresee potential difficulties with submission of assessment items, they should contact the lecturer immediately the difficulties come to notice, to discuss suitable arrangements etc. for the submission of those assessment times. An Application for Assignment Extension or Special Consideration should be completed and provided to the Head of School, School of Law and Business.
This application form, explanation and instructions is available on the ACT204 CDU Learnline course site or direct from
http://learnline.cdu.edu.au/units/lb_school_templates/deployed/assignment_extension.docx
Please note that it is now Faculty policy that all extension requests must be approved by the Head of School. The lecturer is no longer able to personally approve extension requests.
Leaving a request for an extension, special assessment or special consideration until the last moment, based on grounds that students could have reasonably been able to foresee, may result in the application being rejected.
ASSIGNMENT INFORMATION
This Assignment is worth 20% of the total assessment for this unit. This assignment will be marked out of 200 and scaled down to being out of 20. The assignment has two parts. Part A contains 7 questions worth 120 marks and Part B contains 2 questions worth 80 marks.
PART A
Q1. Wanguri Ltd enters a lease agreement to lease equipment to Rapid Creek Ltd. The lease term is for 5 years and the equipment has a fair value at the start of the lease on 1st July 2016 of $45,236. The equipment is expected to have a useful life of 6.5 years at which time the estimated residual value will be $2,600. The residual value at the end of the lease term is $9,360 of which 50% is guaranteed.
The lease agreement requires annual lease payments of $10,400 starting on 30th June 2017. The interest rate implicit in the lease is 9%. Rapid Creek Ltd has the right to cancel the lease at any time. This is conditional upon a payment of 50% of the total lease payments being paid to Wanguri Ltd.
Rapid Creek Ltd will be returning the equipment to Wanguri Ltd at the end of the lease term. The legal and set up costs of the lease incurred by Wanguri Ltd amounted to $1,300. The equipment was purchased just before the start of the lease for $45,236.
Required
A. Explain why the lease should be classified as a finance lease by both the lessor and lessee.
B. Prepare a schedule of lease payments and the journal entries for Rapid Creek Ltd in respect of the lease for the lease term.
C. Prepare a schedule of lease receipts and the journal entries for Wanguri Ltd in respect of the lease for the lease term.
D. Prepare an appropriate note to the financial statements for both companies as at 30 June 2017.
(34 marks)
Q2. On 1 October 2015, Tenant Creek Exploration Ltd, an Australian company, entered a loan agreement with the Island of Mull Banking Corporation to borrow £3,500,000 for a period of 5 years. The interest on the borrowings is payable half-yearly in arrears at the fixed interest rate of 10% p.a. with interest payments of £175,000 (i.e. £3,500,000 × 10% × ½ year) due on 31 March and 30 September each year.
The functional currency of Tenant Creek Exploration Ltd is the Australian dollar. It has reporting periods ending on 31 December and 30 June. The relevant rates of exchange during the financial period ending 30 June 2016 were as follows:
1 October 2015 Aus$1 = £0.555
31 December 2015 Aus$1 = £0.537
31 March 2016 Aus$1 = £0.512
30 June 2016 Aus$1 = £0.485
Required
In accordance with AASB 121, prepare the entries of Tenant Creek Exploration Ltd to record the borrowing transaction, the borrowing costs expense, the borrowings costs paid and the
re-measurement of the borrowings at the end of the reporting period at 30th June 2016. (7 marks)
Q3. The following information has been extracted from the plant register of Aquifer Ltd. This class of plant is expected to depreciate on a straight line basis. A revaluation method has been adopted.
Machine 5921 Machine 5922 Machine 5923
1st July 2015
Cost $90,000 $54,000
Expected useful life 5 years 3 years
30th June 2016
Fair Value $75,600 $34,200
Expected useful life 4 years 2 years
1st January 2017
Cost $72,000
Expected useful life 4 years
30th June 2017
Fair Value $54,900 $61,650
Expected useful life 3 years 1.5 years
This additional information is relevant:
On 1st July 2015 Machines 5921 and 2922 were purchased for cash. On 1st January 2017 Machine
5922 was sold for $26,100 and Machine 5923 was purchased. Both were cash transactions. At this time Aquifer Ltd made a bonus issue of 9 000 shares at $1 per share, using $7200 from the general reserve and $1800 from the asset revaluation surplus created as a result of measuring Machine 5921 at fair value.
Aquifer has a reporting date of 30th June.
Required
Prepare the journal entries to reflect these events from 1st July 2015 to 30th June 2017. (ignore taxation)
(10 marks)
Q4. Whilst you have been assisting Berrimah Line Painting Ltd to produce the financial statements for the year ended 30th June 2016 you have discovered the following information about events that occurred after the end of the reporting period.
On 10th July 2016, a fire in a neighbouring property spread to the paint store and destroyed inventory and two line painting machines. The damage was estimated at $320,000. The insurance company has agreed to pay $240,000 but because the serious crimes squad is investigating the fire, the insurance payment has been delayed. The loss of the inventory and the machines has had a serious impact upon the business’s ability to service its existing contracts.
On 12th July 2016, a major competitor introduced a new method for line printing using new and improved paints and applicators. To maintain Berrimah Line Painting Ltd’s share of the market severe discounting has had to be implemented. This has resulted in the selling price of its paints being reduced to 50% of cost. The inventory in stock at 30th June 2016 had been recorded at a cost of $122,400.
On 12th August 2016, the Environmental Protection Agency gave notice to the company that, due to a leakage that had been traced to a paint store at the Bark Hut depôt, toxic material had seeped into a local watering hole. The leakage happened on 8th July 2016. An infringement notice had been issued and the matter was due to be heard in the local court. If the company is found to be negligent legal advice has suggested that the company will have to pay a fine of $280,000 together with legal fees and clean-up costs which could amount to $200,000.
On 13 August 2017, you discovered that inventory purchase invoices, totalling $30,120, relating to purchases made in June had not been entered onto the system.
On 30 August 2017, the company issued a prospectus offering 2,400 10% debentures of $100 each for public subscription. The debentures are redeemable on 1 October 2025. Interest is payable annually in arrears. The debentures are secured by a floating charge over the company’s assets.
Assume all events and transactions are material.
Required
A. Examine the above events and identify which should be treated as adjusting events and which are non-adjusting events. You should provide a detailed justification for your classification.
B. Having determined the course of action that you would take based upon your classification prepare the necessary journal entries or note disclosures to comply with the requirements of AASB 110.
(8 marks)
Q5. Dragons R Us Ltd runs a dragon fruit plantation in Howard Springs. In June 2015 the CFO predicted that its assets may be impaired due to a change in policy by the Northern Territory government when granting water licences. This could impact the income streams from the export and local markets by reducing Dragons R Us Ltd’s ability to service those markets.
Dragons R Us Ltd values land at fair value. At 30 June 2015 and independent valuer assessed the land to have a fair value of $222,000. A previous revaluation had increased the land value by $37,000. As a result of its impairment testing, Dragons R Us Ltd calculated that the recoverable amount of the entity’s assets was $2,693,600.
The carrying amounts of the assets of Dragons R Us Ltd prior to adjusting for the impairment test and the revaluation of the land were as follows:
Non-current assets
Production shed and farm shop 1572500 Accumulated depreciation -358900 Land (at fair value 1/7/14) 236800 Harvesting equipment 2689900 Accumulated depreciation -1387500
Goodwill 111000
Accumulated impairment losses -81400 Dragons R Us Brand Name and Logo 148000
Current assets
Cash 12950 Trade Receivables 16650
Required
A. Complete the journal entries to reflect the changes in valuation at 30th June 2015.
B. After the apportionment of the impairment loss, the harvesting equipment was written down to
$ 1,184,000. The fair value less costs of disposal of the harvesting equipment was valued at $ 1,110,000. What adjustments, if any, that would need to be made to the journal entries in part A of this question, and explain why the adjustments are or are not required.
(8 marks)
Q6. Glitterati Ltd
Trial Balances as at 30 June
2015 2016
Dr $ Cr$ Dr $ Cr$
