Advanced Financial Accounting
Instructions: Students are required to cover all stated requirements.
1. Your answer must be both uploaded to Moodle in word file, no printed copy
required.
2. You need to support your
answers with appropriate Harvard style references where necessary.
3. Only
include information in your appendix
that has been directly referred to in the body of your document.
4. Include a title/cover page
containing the subject title and code
and the name, student id numbers.
5. Please save the document
asACC204_T1_B1_first name_ Surename_Student Number
Eg:ACC204_T3_B2_John_Smith_20180000
You are required to finish each of
these questions, total 40 marks. Please give the solutions in detail, show
calculations and submit the solutions to Moodle using a single file, it can be
Excel format, Word format or PDF format, no requirement on word limits. If any
reference was used, please refer to Harvard style. Question 1 (10 marks),
Question 2 (10 Marks), Question 3 (10 Marks), Question 4 (10 Marks).
1. As explained within the Chapter 8, intangible
asset, Australian accounting standards now prohibit goodwill from being subject
to amortisation. Rather, there is a requirement that goodwill be subject to
impairment testing. In relation to impairment testing of goodwill, Petersen and
Plenborg (2010, p.420) state:
Many argue that an impairment test only approach seems
a logical step in the development of accounting for goodwill. First, the
underlying logic for removing the traditional
amortization methodology is that the amortization on a straight-line basis over
a number of years contains no information value for those using financial
statements (Jennings et al., 2001). Moreover, IFRS 3 (IASB, 2004b) no longer
requires that companies perform the almost impossible task of estimating the
useful life of goodwill (Jansson et al. 2004). Second, the impairment approach
should provide users of financial statements with better information, as
goodwill is not automatically amortized (Colquitt and Wilson, 2002; Bens and
Heltzer, 2005). Finally, goodwill impairment tests would be operational and
capture a decline in the value of goodwill (Donnelly and Keys, 2002).
REQUIRED
You are to provide a clear argument as to why you
agree or disagree with the perspectives provided in the paragraph above.
2. On 1 July 2015 Kruger Ltd
privately issues $1 million in six-year debentures, which pay interest each six
months at a coupon rate of 6 per cent per annum. At the time of issuing the
securities, the market requires a rate of return of 4 per cent. Consistent with
the requirements of AASB9, the debentures are accounted for using the effective
interest method.
Required
(a) Determine the fair value of the
debentures at the time of issue (which will also be their issue price).
(b) Provide the journal entries
at:
(i) 1 July 2015
(ii) 31 December 2015
(iii) 30
June 2016.
3. Sun City Limited commences construction of a multi-purpose
water park on 1 July 2014 for Pretoria Limited. Sun City Limited signs a
fixed-price contract for total revenues of $50 million. The project is expected
to be completed by the end of 2017 and Pretoria Limited controls the asset
throughout the period of construction. The expected cost as at the commencement
of construction is $38 million. The estimated costs of a construction project
might change throughout the project—in this example, they do change. The
following data relates to the project (the financial years end on 30 June):
|
|
2015 ($m)
|
2016 ($m)
|
2017($m)
|
|
Costs for the year
|
10
|
18
|
12
|
|
Costs incurred to date
|
10
|
28
|
40
|
|
Estimated costs to complete
|
28
|
12
|
–
|
|
Progress billings during the year
|
12
|
20
|
18
|
|
Cash collected during the year
|
11
|
19
|
20
|
Required
(a) Using
the above data, compute the gross profit to be recognised for each of the three
years, assuming that the outcome of the contract can be reliably estimated.
(b) Prepare
the journal entries for the 2015 financial year using the
percentage-of-completion method.
(c) Prepare
the journal entries for the 2015 financial year, assuming the stage of
completion cannot be reliably assessed.
4. Anderson Pty Ltd is an Australian diversified
industrial company with its major business activity being to manufacture
flotation devices for babies and toddlers. Over the past decade, the business
has been very profitable and the directors, Simon Anderson and Lisa Anderson,
have kept payment of dividends to a minimum to allow the company to diversify
into other activities. The following is a list of property, plant and equipment
held by the company:
|
Investments in companies
|
Carrying Value ($)
|
Current fair value ($)
|
|
Property, plant and equipment
|
|
|
|
Factory (NSW)
|
|
|
|
Land
|
100 000
|
150 000
|
|
Buildings
|
|
|
|
– Cost
|
70 000
|
80 000
|
|
– Accumulated depreciation
|
(20 000)
|
–
|
|
Factory (Qld)
|
|
|
|
Land
|
150 000
|
120 000
|
|
Buildings
|
|
|
|
– Cost
|
125 000
|
70 000
|
|
– Accumulated depreciation
|
(45 000)
|
–
|
Mr Anderson informs you that the
directors intend to revalue the property, plant and equipment during the year.
The company has not revalued any assets in the past.
Required
(a) How would you account for the
revaluation of the above assets?
(b) What would the relevant
journal entries be?
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