Course name : ACCT2007 Financial Accounting Regulation: Application and Theory University Name : Torrens University Australia
Assessment Week 7 Homework: Module 4 Financial Instruments
3. Identify and apply appropriate accounting standards to a range of authentic accounting scenarios.
Explain why financial instruments can be classified as financial liabilities or equity instruments. References to relevant accounting standards are required.
On 1 September 2017, Golden Doors entered into a forward exchange rate contract to purchase US$300 000 at a rate of A$1 = US$0.69. This is also the sports rate on the day.
On 2 September 2017, Golden Doors took delivery of inventory from its US supplier at a price of US$300 000 when the spot rate was A$1 = US$ 0.65.
Calculate the amount Golden Doors would have paid on 2 September 2017 in A$ if it had not entered into the forward exchange rate contract, and any gain or loss it made (rounded to the nearest dollar).
Mickey Ltd has 1 500 shares in Minnie Ltd. The current price of Minnie Ltd’s shares is $40 per share. Mickey Ltd will need to sell these shares in 10 months to acquire cash for a capital project. Mickey Ltd is concerned about the price fluctuations over the next 10 months and decides to enter a future contract on Minnie Ltd’s shares, in which Mickey Ltd takes a sell position. The price of the future is $42 and the contract is for 1 500 futures.
Ten months later, the price of Minnie Ltd shares has fallen to $35.00 and the market price of a future with Minnie Ltd is now $38.00.
- Calculate the total gains and losses Mickey Ltd receives for the above transactions. Show all your workings.
- Explain why Mickey Ltd would have entered into a futures contract. Would Mickey Ltd have been in a better financial position if it hadn’t taken out the futures contract? Why? Show all your workings.
Assessment Week 8 Homework: Module 5 Foreign Currency Transactions
On 1 May 2018 Southwest Ltd sells inventory to a customer in Singapore. The inventory is sold for $S600 000 and payment is not due until 30 July 2018. The reporting date for Southwest Ltd is 30 June. The exchange rate information is below:
1 May 2018 A$1 = $S1.20
30 June 2018 A$1 = $S1.35
30 July 2018 A$1 = $S1.10
Southwest Ltd uses a perpetual inventory system. The cost of inventory sold is A$250 000.
Provide journal entries required for Southwest Ltd on 1 May, 30 June, and 30 July 2018 in accordance with AASB 121. Note: Show all workings and round to the nearest whole A$. Journal narrations are required.
On 1 July 2018 Brownie Ltd enters into an arrangement with a Hong Kong bank to borrow $HK1 200 000. The term of the loan is 3 years with interest payable annually in arrears on 30 June at the rate of 8 per cent. The exchange rate information is below:
1 July 2018 A$1 = $HK4.50
30 June 2019 A $1 = $HK3.25 30
June 2020 A $1 = $HK4.70
Provide journal entries required for Brownie Ltd on 1 July 2018, 30 June 2019, and 30 June 2020 in accordance with AASB 121. Note: Show all workings and round to the nearest whole A$. Journal narrations are required.
On 15 April 2018 Stamford Ltd purchases furniture for US$150 000 on credit from an American supplier. On the same day, the furniture is shipped from the US and Stamford Ltd recognizes an Accounts Payable for the furniture bought. Stamford Ltd is due to pay the American supplier on 15 July 2018.
Exchange rates are given below:
15 April 2018 A$1.00 = US$0.75
30 June 2018 A$1.00 = US$0.80 15
July 2018 A$1.00 = US$0.65
Prepare journal entries required for Stamford Ltd on 15 April, 30 June, and 15 July 2018 in accordance with AASB 121. Note: Show all workings and round to the nearest whole A$. Journal narrations are required.
Assessment Week 9 Homework: Module 6 Extractive Industries
On 1 May 2017 Arkaba Mining Ltd assesses that its Hollenby area of interest contains economically recoverable reserves of 50 000 ounces of gold. On the same day, the company installs the following assets:
|Mine site building||$1 500 000||20 years|
|Mining equipment||2 400 000||15 years|
|Types of machinery and equipment (portable)||750 000||8 years|
The above assets are ready for use on 1 July 2017. Arkaba Mining Ltd expects to extract the entire reserves in 5 years. For the year ending 30 June 2018, the company extracts 5 000 ounces of gold.
The company depreciates its assets using the production-output method, except where such assets can be redeployed elsewhere, in which case their individual useful life is used.
- Calculate the total depreciation expenses for Arkaba Mining Ltd for the year ending 30 June 2018.
- Provide the journal entry to recognize the depreciation expense in Part (a). Journal narrations are not required.
Arterial Ltd is a mining company incorporated on 1 July 2017 to engage in the exploration of iron ore in southern Victoria. On 30 June 2018, the company incurs the following exploration and evaluation costs for Area of interest A and Area of interest B.
|Area of interest A||Area of interest B|
|Exploration costs||$400 000||$350 000|
|Evaluation costs||200 000||150 000|
|Total||$600 000||$500 000|
On 30 June 2018, Area of interest B is evaluated by the company’s Board of Directors to be not economically feasible and thus is abandoned.
- Provide the journal entries to record the above transactions as at 30 June 2018 using the area-of-interest method.
- What are the effect of the above transactions on Arterial Ltd’s statement of financial position and the statement of financial performance for the year ending 30 June 2018 using the area-of-interest method?
Assessment Week 10 Homework: Module 7 Events after Reporting Period
Consider the following independent events experienced by different companies. For all companies, assume the reporting date is 30th June 2017, and the authorization date of the financial statements is 30 August 2017.
1. On 15th July 2017, the dividend to be paid by Algate Ltd has been determined.
2. Mylanda Ltd has a series of outback cattle stations. On 20th July 2017, it is discovered that flooding before the reporting date has destroyed several farm buildings, equipment, and some stock. The loss is material in size.
3. Seesaw Ltd has been negotiating a merger with a company that is currently its major supplier. On 1st August 2017, the merger agreement is finalized. The merger materially affects the size and structure of the new entity and should bring substantial economic benefits to all shareholders.
4. Carrington Ltd has been experiencing cash flow difficulties and sought a long-term loan from a merchant bank to enable it to restructure its financing from short-term to long-term debt. On 5th July 2017, the loan is approved by the bank and the funds are expected to be received by 31st July 2017.
5. On 10th August 2017, management of Seaview Ltd has become aware that a major customer is insolvent. The customer apparently went into receivership before 30th June 2017 and owes Seaview Ltd a material amount for inventory purchased during the period.
Determine how each event should be accounted for in the financial statements for the year ended 30th June 2017.
Note: You should Identify if each event is an adjusting or non-adjusting event, what accounts are affected, and what disclosure is required.
The following transactions and events relate to Britannica Ltd. The company’s reporting date is 30th June 2017, and the authorization date of its financial statements is 15th September 2017. Assume each event is independent of each other.
1. On 20th July 2017, it becomes public knowledge that the company income tax rate is to be increased and that the increase is to apply retrospectively to the financial year just completed.
2. On 2nd August 2017, the company’s accountant completes the collection of information about the realizable value of inventory as at its reporting date. A number of items are reflected at a cost greater than the net realizable value with a material effect on the accounts.
3. Britannia Ltd has borrowed substantially in foreign currency loans. On 15th August 2017, an unexpected major downturn in the Australian economy has substantially weakened the Australian dollar. It appears that Britannia Ltd will not be able to meet the foreign currency debt as it falls due.
4. Brianna Ltd is being sued over damage to farmland as a result of an accident in which poisonous chemicals were mixed with fertilizer. As of 30th June 2017, there was no information about the court decision and a contingent liability had been disclosed. On 25th August 2017, the court handed down its decision and upheld a substantial claim for damages.
5. Brianna Ltd is being sued for negligence in manufacturing a piece of equipment that has allegedly resulted in injury to an employee of the claimant business. The accident occurred on 5th July 2017, but the company has settled quickly so the outcome is now known before the authorization date of its financial statements. The settlement is for a material amount.
Assessment Week 11 Homework: Module 8 Income Taxes
Week 7 Homework Question
a) Tianna Ltd has a depreciable asset that is estimated to have a useful life of 6 years for accounting purposes. For taxation purposes, the useful life is 4 years. The asset was purchased at the beginning of Year 1. There is no residual value, and the straight-line method of depreciation is used for both tax and accounting purposes. The tax rate is 30% and the cost of the asset is $180 000.
Calculate the amount of the deferred tax liability account generated by this asset at the end of Years 1, 2 and 3. Note: Show all workings.
b) Symphony Ltd generated credit sales of $200 000 for Year 1. The allowance for doubtful debts for these sales is $6 000. For taxation purposes, the amount provided for doubtful debts is not tax-deductible. The tax rate is 30%.
What is the deferral account arising from this situation? Provide the relevant journal entries for Year 1, assuming a zero opening balance for this deferral account. Note: Show all workings.
c) Bendery Ltd has an item of machinery that has a carrying value of $160 000. For taxation purposes, Bendery had recorded the asset’s net value of $120 000 and deferred tax liabilities of $6 000.
Bendery also has accrued interest revenue of $10 000 that will not be taxed until it is received in cash. The tax rate is 30%.
Provide the journal entries to record the tax effect of the above transactions. Note: Show all workings.
d) Mintaka Ltd offers a warranty on all the spare parts it sells. This period the accrued warranty is $15 000. For tax purposes, there is no deduction for the warranty until payments are made.
Mintaka Ltd also has equipment that has a useful life for accounting purposes of 4 years, and for tax purposes of 3 years. The equipment was purchased at the beginning of the current period, cost $27 000 and has no residual value. The straight-line method of depreciation is used for both accounting and tax purposes. The accounting profit before tax this period is $240 000. The tax rate is 30%.
Provide the journal entries to record the tax expense and tax payable. Note: Show all workings.
e) Cashmere Ltd incurred a loss of $250 000 for tax purposes in 2016. This was due to one-off circumstances and it is expected that Cashmere will make profits again in 2017 and subsequent years. There are no temporary differences in either year. 2017Casper makes a profit of $350 000. The tax rate is 30%.
Provide the relevant journal entries for 2016 and 2017. Note: Show all workings.
Assessment Week 12 Homework: Module 9 Corporate Social and Environmental Responsibility
Week 12 Homework Questions
Select an Australian public company from one of the following sectors in the ASX Listed Companies list.
- Automobiles and components
- Food, beverage, and tobacco
- Health care equipment and services
- Pharmaceuticals & Biotechnology
Note: You should choose a company that you have not looked at previously. The ASX Listed Companies list can be downloaded by selecting ‘Download Directory’ from the following web link: http://www.asx.com.au/prices/company-information.htm
a) Review the company’s annual reports for 2017 and 2015. Compare the company’s social and environmental responsibility (SER) reporting and respond to the following questions:
- What did the company report?
- What is the theme of the report?
- In what areas is the company’s SER reporting the same between 2017 and 2015? In what areas is the SER reporting different between 2017 and 2015?
b) Visit the company’s website and review its SER reporting on the website, i.e. not the annual report. Respond to the following questions:
- What did the company report?
- What is the theme of the report?
- How is the SER reporting on the company’s website different from the SER reporting in its annual report?
ACCT2007 Financial Accounting Regulation: Application and Theory Revision for Class Test
Question 1: Intangible Assets
Clean Water Ltd has recently received a $2 million research grant. This grant has allowed the company to work on a project to remove brown stains from bore water on footpaths. The consultants at Clean Water Ltd researched the problem with the intention of developing a water filter system, which would remove the effects of the iron content in the water and eliminate the brown stains. Once developed, it can be patented and filters sold in local hardware shops.
During 2016, Clean Water Ltd commenced its work on the problem. Costs incurred in this process were as follows:
June: Online survey to household users of bore water to investigate consumers’ interest in a water filter to remove brown stains. This cost $2 000 in administrative salaries.
July: Investigation of the water industry, paid $100 000.
August: Salaries paid to engineers who conducted basic tests on available filters and paid $205 000.
September: Designed and developed a new filter system and paid $232 000, which included the production and testing of a basic model.
October: The company now believed it had a successful model and commenced planning the production schedule of filters. Fees paid for protecting patent application totaled $15 000.
- Explain how Clean Water Ltd should account for each of the above costs. In your answer, discuss the recognition criteria relevant for each cost (if applicable). Reference to AASB 138 Intangible Assets is not required.
- Assuming Clean Water Ltd started amortizing any intangible asset in Part (i) from January 2017 using straight-line amortization over 20 years with zero residual value. What amount should be amortized for the financial year ended 30 June 2017?
- Provide relevant journal entries for Part (i) and Part (ii) above.
Question 2: Accounting Theory
Accounting research can be categorized into two groups of theories, either positive or normative theories.
Respond to each of the following independent scenarios.
- The CFO of Water Corporation Ltd receives an annual bonus calculated at 5 percent of the company’s annual profit. By reference to Positive Accounting Theory (PAT), explain whether you expect the CFO to prepare the company’s financial statements in an unbiased manner.
- By reference to normative accounting theories, explain whether you agree that there should be a separate accounting standard for intangible assets.
Question 3: Conceptual Framework
Refer to the Conceptual Framework for Financial Reporting that comprises two documents below:
- Statement of Accounting Concepts (SAC) 1 Definition of the Reporting Entity
- Framework for the Preparation and Presentation of Financial Statements, i.e. the Framework
Answer the following questions:
- Identify and explain one fundamental qualitative characteristic and one enhancing the qualitative characteristic of useful financial information. Provide two examples, one for each characteristic, to illustrate your answer.
- Distinguish between the definition and recognition of elements of financial statements. Provide one example of elements of financial statements, and distinguish between the definition and recognition of the provided element, to illustrate your answer.
ACCT 2007 Financial Accounting Regulations – Application and Theory Practice Exam
Question 1: Biological Assets
- Agriculturists North Ltd began a plantation cultivate in 2014 when the organization planted an assortment of plantations. The plantations were prepared for deals amid the monetary year finishing 30 June 2015. Amid the monetary year finishing 30 June 2016, 75 percent of the collected plantations were sold at a complete deal cost of $390 000, while the rest of the 25 percent was perceived as stock at the year-end. The reasonable esteem fewer expenses to move the plantations soon after being reaped and pressed in boxes were $460 000. The organization paid $20 000 to the easygoing workers for gathering and pressing the plantations, and brought about $4 000 in expenses to move the plantations. Furthermore, all costs identified with representatives’ compensations and wages, manures and other comparable things totaled $66 670 for the year finishing 30 June 2016.The reasonable esteem fewer expenses to move off the plantation plants were $640 000 at 30 June 2015 and $734 000 at 30 June 2016.
Set up the diary passages to record the accompanying exchanges as per AASB 141 Agriculture:
collecting of plantations
offers of plantations
changes in the reasonable estimation of the plantation plants between 30 June 2015 and 2016.
costs caused to keep up the plantation plants
Question 2: Financial Instruments
On second April 2016 Latrine Ltd, an Australian furniture maker, sold a compartment of furniture to Benjie Ltd, a retailer in Hongkong, at a concurred cost of HK$9 200 000. The couches were to be conveyed on the second May with settlement three months after the fact on second August 2016. While getting the request from Benjie Ltd on second April, Latrine Ltd secured in the value they would get by taking out a forward rate contract to offer HK$9 200 000 to Latrine’s bank at a forward rate of A$1=HK$5.5250. Toilet Ltd. chooses to utilize income fence bookkeeping. The expense of the couches sold was A$900 000. Lavatory Ltd’s monetary year finishes on 30 June.
The pertinent spot rates are:
Date Spot rate Forward rates
2 Apr 5.520 5.525
2 May 5.530 5.545
30-Jun 5.540 5.530
2 Aug 5.550 5.550
Set up the diary sections to represent above occasions on the accompanying data:
2 April 2016
2 May 2016
30 June 2016
2 August 2016
Question 3: Accounting for Income Tax
At 30 June 2015, Melvyn Ltd had the accompanying brief contrasts:
Resource or Liability
PCs at cost 300 300
Aggregated depreciation (60) (100)
PCs (net) 240 200 40
Records receivable 100 100
Resource or Liability
Remittance for suspicious debts (10) 0
Record receivable (net) 90 100 10
Arrangement for guarantee costs 30 0 30
Arrangement for representative advantages (LSL) 20 0 20
The accompanying data is accessible for the next year, the year finishing 30 June 2016.
Salary Statement for Melvyn Ltd
For the year finishing 30 June 2016
Revenue 4 000
Cost of merchandise sold expense (1 800)
Devaluation expense (60)
Guarantee expense (90)
Terrible and far fetched obligations expense (25)
Altruism impairment (500)
Other expenses (875)
Benefit before tax 650
Records receivable 120
Recompense for far fetched debts (20)
Arrangement for guarantee costs 50
Arrangement for worker benefits (LSL) 30
Melvyn Limited deteriorates PCs more than five years in its bookkeeping records however more than three years for expense purposes. The straight-line strategy is
Amid the year Melvyn discounted terrible obligations adding up to $15
Guarantee expenses of $70 000 were paid amid the
No sums were paid for long administration leave amid the year. Altruism debilitation isn’t deductible for the expense
There was no obtaining of plant and gear amid the year finishing 30 June 2016.
The organization’s expense rates as at 30 June 2015 and 30 June 2016 was 30
Ascertain the measure of every one of Melvyn’s transitory contrasts, assuming any, at 30 June 2015, and state whether it is deductible or
What is the equalization of the conceded expense obligation and conceded impose resource, assuming any, as at 30 June 2015?
Compute Melvyn’s assessable pay for the year finished 30 June 2016?
Get ready diary passages to record current expense and conceded charge for the year finished 30 June
Question 4: Extractive Industries
Excon Ltd initiated tasks on 1 January 2015. Amid 2015, Excon Ltd investigated the accompanying zone and brought about the accompanying expenses:
Investigation and Evaluation Expenditure ($m)
In 2016, oil was found at GSi. In connection to the investigation and assessment consumptions caused at GSi, 80 percent of the uses identify with property, plant, and gear, and the equalization identifies with immaterial resources.
In 2016, advancement expenses of $27 million were caused at GSi (to be discounted on a creation premise). Of this use, $20 million identifies with property, plant, and hardware, and the parity identifies with immaterial resources. GSi was evaluated to have 15 million barrels.
The present deal cost is $30 per barrel. Three million barrels were removed at a creation cost of $4 million and 1.9 million barrels were sold.
Figure the expense of merchandise sold for GSi
Set up a removed salary proclamation for GSi appearing, COGS, and gross benefit.
Ascertain the gross benefit proportion for GSi
Question 5: Foreign Currency Transactions
Adelaide Ltd buys merchandise from Suppliers Ltd, an organization situated in the United States. All buys are named in US dollars. Buys of US$ 5 million were made on 1 May 2016. The sum was expected for installment to Suppliers Ltd on 1 September 2016. Adelaide Ltd’s parity date is 30 June.
Date Spot rate
1 May 2016 A$1= US$ 0.84
30 June 2016 A$1= US$ 0.85
1 September 2016 A$1= US$ 0.86
Get ready important diary sections for Adelaide Ltd to represent the above exchange on the accompanying dates:
1 May 2016
30 June 2016
1 September 2016
Question 6: Events in the wake of the Reporting Period and Corporate Social Responsibility
What are the diverse kinds of subsequent to announcing period occasions and in what manner would it be a good idea for them to be uncovered? Give and quickly clarify one case for each
Distinguish and clarify two inspirations of CSR detailing. Give guides to show your answers.
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