Assignment Questions -
Answer ALL of the following questions.
Q1. Explain what regulations govern the financial reports that must be prepared by PGW Ltd.
Q2. In answering the question consider that this is intended to be an overview of the regulatory environment rather than a detailed explanation of the reporting standards. However, you should aim to provide at least three sources.
Q3. Briefly discuss what ethical considerations management should consider when undertaking impairment testing. You may use PGW Ltd as an example.
Note: You may need to have access to the 2017 Annual Report for PGW Ltd for the above two questions.
Q4. Ego Limited has the following accounting policies in regard to property, plant and equipment:
(a) Items of property, plant and equipment are initially recorded at cost. Cost is the gross cash price equivalent before trade discounts.
(b) All motor vehicles, except for one motor vehicle, are stated at fair value subsequent to initial recognition. Fair value is the price that could be exchanged between two willing parties.
(c) Regular assessment of the fair value of the assets are made to ensure that the carrying amount does not differ materially from its fair value as at the date when the financial statements are authorised by the directors. The assessments are undertaken every three years.
(d) All revaluation increments are credited to an asset revaluation reserve account and reflected as part of equity.
(e) All revaluation decrements are recognised immediately as expenses in the profit and loss account.
Required: Determine whether the above accounting policies of Ego Limited are in compliance with the relevant accounting standards. Please explain and support your answer with the relevant paragraphs in the accounting standards. Provide the correct accounting policies if you determine that the above policies are not in compliance with the accounting standards.
Q5. Pleasant Cruising Limited ('PCL') purchased a 35 foot yacht at a cost of $1 million on 1 January 2014. At the time of purchase, PCL estimated the useful life of the yacht to be ten years with an expected residual value of $20,000. PCL depreciates the yacht on a straight line basis. On 1 January 2018, PCL receives an offer from a buyer to buy the yacht at a price of $650,000 with the condition that the company must repaint the yacht. The cost of repainting the yacht is estimated to be $60,000. The yacht is currently berthed at a Marina. If PCL accepts the offer from the buyer, PCL will have to pay the contracted berthing charges for 2018 even if the company terminates the berthing agreement with the Marina before the end of 2018. Berthing charges for 2018 amounted to $50,000. If PCL rejects the offer, the Company could continue to use the yacht until the end of its estimated useful life. The yacht is expected to generate future cash flows of $115,000 per year. Market interest rate is currently at 6% per year.
Required: (Show all workings and calculations)
Determine whether any impairment loss needs to be recognised in relation to the yacht. If impairment loss needs to be recognised, calculate the amount of impairment loss and prepare journal entries to account for the impairment loss. Explain and justify your answers if you determine that impairment loss is not required.
Q6. Anaru Ltd values inventory on an item by item basis. The company has the following inventory items as at reporting date:
|
Item Number
|
Quantity
|
Cost per unit ($)
|
Selling Price per unit ($)
|
Admin Cost per unit ($)
|
Outbound freight cost per unit
|
|
120
|
10,000
|
3.00
|
3.60
|
0.20
|
0.38
|
|
333
|
11,000
|
3.00
|
3.30
|
0.10
|
0.45
|
|
426
|
6,000
|
4.00
|
4.80
|
0.05
|
0.65
|
|
437
|
1,000
|
3.60
|
3.70
|
0.01
|
0.14
|
|
510
|
9,000
|
2.25
|
3.00
|
0.02
|
0.25
|
|
522
|
4,000
|
3.00
|
3.60
|
0.04
|
0.70
|
|
573
|
3,200
|
1.60
|
2.50
|
0.03
|
0.60
|
|
626
|
1,000
|
4.70
|
5.00
|
0.05
|
0.50
|
Required: (Show all workings and calculations)
(a) Calculate the total value of closing stock as at the reporting date in accordance with the relevant accounting standard.
(b) Determine whether there is a need to write down the value of the closing inventories. If so, calculate the amount and prepare journal entries to account for the inventory write down. Explain and justify your answer if you determine that inventory write down is not needed.
Q7. Briefly discuss the difference in measuring intangible assets that are individually acquired compared with those intangible assets that are acquired as part of a business combination. In your answer provide enough justification for the related accounting standards to support your discussion.