Problem #1

ABC Trading operates in a very competitive field. To maintain its market position, it purchased two new machines for cash on 1 January 2012. It had previously rented its machines. Machine A cost $40,000 and Machine B cost $100,000. Each machine was expected to have a useful life of 10 years, and residual values were estimated at $2000 for Machine A and $5000 for Machine B.

On 30 June 2013, ABC Trading adopted the revaluation model to account for the class of machinery. The fair values of Machine A and Machine B were determined to be $32 000 and $90 000 respectively on that date. The useful life and residual value of Machine A were reassessed to 8 years and $1500. The useful life and residual value of Machine B were reassessed to 8 years and $4000.

On 1st January 2014, extensive repairs were carried out on Machine B for $66,000 cash. ABC Trading expected these repairs to extend Machine B's useful life by 2.5 years and it revised Machine B's estimated residual value to $9,450.

Owing to technological advances, ABC Trading decided to replace Machine A. It traded in Machine A on 31st March 2014 for new Machine C, which cost $70,000. A $28,000 trade-in was allowed for Machine A, and the balance of Machine C's cost was paid in cash. Transport and installation cost of $1500 were incurred in respect to Machine C. Machine C was expected to have a useful life of 8 years and a residual value of $8,000.

ABC Trading uses the straight-line depreciation method and recording depreciation to the nearest dollar. The end of its reporting period is 30 June.

On 30 June, 2014 fair values were determined to be $130 000 and $60 000 for Machine B and C respectively.

Required:

Prepare general journal entries to record the above transactions and the depreciation journal entries required at the end of each reporting period up to June 2014 (Narrations are not required but show all workings)

Problem #2

I) A ltd is a catering company specialising in providing catering services to remote area mine sites. Its main theatre of operations is Australia but during the current year the company acquired significant long-term contracts in Pakistan and Nigeria. AASB 114 Segment Reporting requires entities to disclose material geographical segment information but A ltd has failed to comply with this requirement

Required:

Discuss whether the non-disclosure of information about operations in Pakistan and Nigeria would be material.

II) The statement of financial position of W ltd as at 30 June 2011 includes an asset ‘Debenture money receivable $500,000' and a liability ‘Debenture $500 000'. Note 12 to the accounts reveals that the issue of the debentures to a private investor was approved by the board of directors on 28 June 2011 but the debenture issue did not take place until July 2011.

Required:

Comment on the accounting treatment of the debenture issue in accordance with the requirements of the AASB 110.

Source:
• Leo, K., Hoggett, J., Sweeting, J. & Radford, J. (2012) Company Accounting in Australia, 9th Edition, Wiley and Sons, Brisbane