Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

Assignment - Problem questions

This assessment task consists of five (5) questions. All workings, when appropriate, must be shown to substantiate your answers.

Question 1 - Financial statement disclosures

You are the financial accountant for Superstore Ltd, and are in the process of preparing its financial statements for the year ended 30 June 2018. Whilst preparing the financial statements, you become aware of the following situations:

1. On 1 July 2017, the directors made a decision, using information obtained over the last couple of years, to revise the useful life of an item of manufacturing equipment. The equipment was acquired on 1 July 2015 for $800,000, and has been depreciated on a straight-line basis, based on an estimated useful life of 10 years and residual value of nil. Superstore Ltd uses the cost model for manufacturing equipment. The directors estimate that as at 1 July 2017, the equipment has a remaining useful life of 6 years and a residual value of nil. No depreciation has been recorded as yet for the year ended 30 June 2018 as the directors were unsure how to account for the change in the 2018 financial statements, and unsure whether the 2016 and 2017 financial statements will need to be revised as a result of the change.

2. In June 2018, the accounts payable officer discovered that an invoice for repairs to equipment, with an amount due of $20,000, incurred in June 2017, had not been paid or provided for in the 2017 financial statements. The invoice was paid on 12 July 2018. The repairs are deductible for tax purposes. The accountant responsible for preparing the company's income tax returns will amend the 2017 tax return, and the company will receive a tax refund of $6,000 as a result (30% x $20,000). No journal entries have been done as yet in the accounting records of Superstore Ltd, as the directors are unsure how to account for this situation, and what period adjustments need to be made in.

3. Superstore Ltd holds shares in a listed public company, ABC Ltd, which are valued in the draft financial statements on 30 June 2018 at their market value on that date - $600,000. A major fall in the stock market occurred on 10 July 2018, and the value of Superstore's shares in ABC Ltd declined to $250,000.

4. On 21 July 2018, you discovered a cheque dated 20 April 2018 of $32,000 authorised by the company's previous accountant, Max. The payment was for the purchase of a swimming pool at Max's house. The payment had been recorded in the accounting system as an advertising expense. You advise the directors of this fraudulent activity, and they will investigate.

Assume that each event is material.

Required:

i) State the appropriate accounting treatment for each situation. Provide explanations and references to relevant paragraphs in the accounting standards to support your answers. Where adjustments to Superstore Ltd's financial statements are required, explain which financial statements need to be adjusted (ie. 2016, 2017, 2018 or 2019).

ii) Prepare any note disclosures and adjusting journal entries that are needed in the 2018 financial statements for each situation.

Question 2 - Accounting for share capital

Rippa Ltd was incorporated on 1 July 2017. The following transactions and events occurred during the year ended 30 June 2018:

1 Jul 2017: Rippa Ltd makes an offer to the public for investors to subscribe for 5,000,000 shares, at an issue price of $4.00 per share, with $2.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $12,000.

31 Jul 2017: Applications close, with applications received for 6,000,000 shares.

10 Aug 2017: 5,000,000 shares are allotted in proportion to the number of shares for which applications had been made. The surplus application money is offset against the amount payable on allotment.

12 Aug 2017: The underwriter's commission is paid.

10 Sep 2017: All allotment money is received.

1 Feb 2018: The call is made, with money due by 28 February 2018.

28 Feb 2018: All call money is received except for holders of 40,000 shares who fail to meet the call.

20 Mar 2018: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $3.20 is received for each share sold. Costs of the forfeiture and reissue amount to $4,000, and are paid.

25 Mar 2018: The balance of the Forfeited Shares Account is returned to the former shareholders.

Required:

i) Prepare the journal entries to record the transactions of Rippa Ltd up to and including that which took place on 25 March 2018. Show all relevant dates and narrations.

ii) After returning money to the former shareholders on 25 March 2018, one of the former shareholders has contacted you in relation to the amount of money that he received. He tells you that he paid the application money and allotment money for the shares that he had, so he should get an amount back of $3.50 per share. Explain why the amount returned to the former shareholders was not $3.50 per share, and prepare workings to show how the refund per share was calculated.

Question 3 - Accounting for income tax

Jackson Storm Ltd commenced business on 1 July 2017, with share capital of $300,000. On 30 June 2018, the company presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position. The statements are prepared before considering taxation. The following information is available:

Statement of Profit or Loss and Other Comprehensive Income (Extract) for the year ended 30 June 2018


$

$

Revenue


2 150 000

Government grant (exempt from income tax)


50 000

Expenses



Cost of sales

925 000


Advertising

59 000


Annual leave

25 000


Depreciation - equipment

70 000


Depreciation - motor vehicles

30 000


Doubtful debts expense

34 000


Entertainment (not tax deductible)

4 500


Insurance

18 000


Rent

78 000


Salaries

335 000


Warranty expenses

18 500


Other expenses

47 200

1 644 200

Accounting profit before tax


555 800

 

Statement of Financial Position (Extract) as at 30 June 2018


$

$

Assets



Cash


40 000

Inventory


162 900

Accounts receivable

250 000


Less: allowance for doubtful debts

(32 000)

218 000

Prepaid insurance


7 000

Equipment - cost

700 000


Less: accumulated depreciation

(70 000)

630 000

Motor vehicles - cost

120 000


Less: accumulated depreciation

(30 000)

90 000

Total assets


1 147 900




Liabilities



Accounts payable


54 600

Loan


200 000

Provision for annual leave


21 000

Provision for warranties


16 500

Total liabilities


292 100

Net assets


855 800




Equity



Share capital


300 000

Retained earnings


555 800



855 800

Additional information:

  • The company purchased equipment at a cost of $700,000 on 1 July 2017. The equipment is depreciated over ten years for accounting purposes, and seven years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil).
  • The company purchased motor vehicles at a cost of $120,000 on 1 July 2017. The motor vehicles are depreciated over four years for accounting purposes, and six years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil).
  • Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued.
  • Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
  • Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.
  • The tax rate is 30%.

Required:

i) Determine the balance of any current tax liability and deferred tax assets and deferred tax liabilities for Jackson Storm Ltd as at 30 June 2018, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.

ii) Prepare the journal entries to record the current tax liability and deferred tax assets and deferred tax liabilities.

Question 4 - Revaluation of property, plant and equipment

You are the accountant for Superstar Ltd, and you are required to account for the company's equipment for the years ended 30 June 2017 and 30 June 2018, which are measured using the revaluation model. The directors elect to depreciate equipment on a straight-line basis.

Equipment 1:

The first equipment has a carrying amount as follows, prior to any depreciation or revaluation being recognised for the year ended 30 June 2017:

Revalued amount (as at 30 June 2016):

$60,000

Less: accumulated depreciation

-

Carrying amount

$60,000

This equipment was revalued for the first time on 30 June 2016, from $70,000 to $60,000. The directors determined that as at 30 June 2016, this equipment had an estimated remaining useful life of 4 years, and an estimated residual value of $10,000.

The directors have determined that the fair value of this equipment on 30 June 2017 is $55,000. At 30 June 2017, this equipment had an estimated remaining useful life of 3 years, and the residual value remains unchanged at $10,000.

The directors have determined that the fair value of this equipment on 30 June 2018 is $44,000.

Equipment 2:

The second equipment at has a carrying amount as follows, prior to any depreciation or revaluation being recognised for the year ended 30 June 2017:

Revalued amount (as at 30 June 2016):

$20,000

Less: accumulated depreciation

-

Carrying amount

$20,000

This equipment has been revalued a number of times, with revaluation decrements amounting to $1,000 being previously recognised in profit or loss. The directors determined that as at 30 June 2016, this equipment had an estimated remaining useful life of 4 years, and an estimated residual value of $4,000.

The directors have determined that the fair value of this equipment on 30 June 2017 is $18,000. At 30 June 2017, this equipment had an estimated remaining useful life of 3 years, and the residual value has been revised to $6,000.

This equipment is sold on 31 December 2017 for $13,000.

Required: Prepare the necessary journal entries to account for each of the above equipment for the years ended 30 June 2017 and 30 June 2018 (including entries for depreciation, revaluations, and any disposals). Show all relevant workings. Note: you are not required to account for income tax associated with revaluations.

Question 5 - Impairment of assets

Foodie Ltd has two separate cash generating units, 'Fizzy Drinks' and 'Ice creamery'. At 30 June 2018, the carrying amounts of the assets of the units, valued pursuant to the cost model, are as follows:


Fizzy Drinks

Ice creamery


$

$

Cash

18,000

14,000

Inventory

34,000

25,000

Fixtures and fittings

25,000

35,000

Accumulated depreciation - fixtures and fittings

(5,000)

(10,000)

Equipment

165,000

25,000

Accumulated depreciation - equipment

(55,000)

(15,000)

Land and buildings

650,000

185,000

Accumulated depreciation - buildings

(25,000)

(6,000)

Patent

25,000

-

Goodwill

40,000

15,000

Total

872,000

268,000

The inventory is recorded at the lower of cost and net realisable value. The patent has a fair value less costs to sell of $20,000. The land and buildings of 'Fizzy Drinks' have a fair value less costs to sell of $620,000, and the land and buildings of 'Ice creamery' have a fair value less costs to sell of $175,000.

On 30 June 2018, the directors of Foodie Ltd estimate that the fair value less cost to sell for 'Fizzy Drinks' and 'Ice creamery' amount to $750,000 and $260,000 respectively. The value in use of 'Fizzy Drinks' and 'Ice creamery' are estimated at $810,000 and $240,000 respectively.

Required: Determine the impairment loss (if any) to be recognised by Foodie Ltd for each of its cash generating units as at 30 June 2018, and determine how the impairment loss (if any) is to be allocated. Prepare the journal entries to account for the impairment loss/losses (if any). Show all workings and provide references to the relevant accounting standard to support your answer.

Rationale - This assessment task will assess the following learning outcome/s:

  • be able to prepare basic financial statements for reporting entities.
  • be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based.
  • be able to explain the form and content of financial statements.
  • be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93124091
  • Price:- $20

Priced at Now at $20, Verified Solution

Have any Question? 


Related Questions in Financial Accounting

On december 1 of the current year the following accounts

On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor: Preferred 2% Stock, $50 par (240,000 shares authorized, 86,000 shares issued)$4,300,00 ...

Consider the following account starting balances and

Consider the following account starting balances and transactions involving these accounts. Use T-accounts to record the starting balances and the offsetting entries for the transactions. The starting balance of Cash is ...

Comprehensive problem - lou barlow a divisional manager for

Comprehensive Problem - Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division's ...

Accounting financial assignment -question - in recent years

Accounting Financial Assignment - Question - In recent years a number of companies have gone into liquidation (been 'wound up') because they have not been able to meet their liabilities when they fell due. In Australia, ...

Assessment -part a -saturn petcare australia and new

Assessment - Part A - Saturn Petcare Australia and New Zealand is Australia's largest manufacturer of pet care products. Saturn have been part of the Australian and New Zealand pet care landscape since opening their firs ...

Can you please help me with thishow do restrictions affect

Can you please help me with this. How do restrictions affect net assets in Not- For -Profit organization or health care?

Lease classification considering firm guidance issues

Lease Classification, Considering Firm Guidance (Issues Memo) Facts: Tech Startup Inc. ("Lessee") is entering into a contract with Developer Inc. ("Landlord") to rent Landlord's newly constructed office building located ...

Part adbm financial solutionsyou are a financial consultant

Part A DBM Financial Solutions You are a financial consultant working with DBM Financial Solutions and have a portfolio of clients you work with in achieving financial management solutions. Client 1- Manhattan Limited Yo ...

Supply and demand graphto complete this assignment address

Supply and Demand Graph To complete this assignment, address the following requests: 1. Based on the information from the US Energy Information Administration, create the supply and demand graph in the space below. This ...

Need slides need a one page executive summarybelow is the

Need slides. Need a one page executive summary. Below is the scenario: "Hi again. I've got news about our client. "ExxonMobil is looking to increase revenue by 10 percent and possibly reduce costs. Need an executive summ ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As